Stock, bond and gold markets were all in an upheaval Thursday
following a much-anticipated U.S. Federal Reserve meeting that
yielded the answer investors had been looking for. Fed Chairman Ben
Bernanke said late Wednesday that moderating bond purchases
amounting to $85 billion a month later this year seems to make
sense given the central bank's optimism regarding the U.S. economic
Both the Dow Jones industrial average and the S&P 500
slipped some 1.5 percent in early trade. Gold prices plummeted
below $1,300 an ounce-or 7 percent-to their lowest reading in more
than 2 1/2 years, while yields on 10-Year Treasury notes climbed to
as high as 2.47 percent at one point, reaching a nearly two-year
Oil prices were also sliding and the mortgage-backed securities
market was facing investor selling pressure more so than Treasurys,
according to a Wall Street Journal's Money Beat Report. In short,
there were no safe havens on Thursday for investors afraid of a
world free of the Fed's "quantitative easing" program to hide.
In the transparent world of
, it's easy to see just how widespread the panic was at the Fed's
suggestion that the U.S. economy might be getting strong enough to
be pulled off of its "QE"-based life support. That's true in terms
of the intraday pricing of ETFs and, in a broader perspective, in
terms of investment flows, which on ETFs must be reported
The SPDR S&P 500 (NYSEArca:SPY) gapped lower, dropping 1.5
percent to a two-week low of about $161 a share. Investors had
added a net of $1.7 billion to the fund in the first two weeks of
June, but Thursday, the $136.5 billion fund was facing a
Fed 'Tapering,' Gold Tanking
The SPDR Gold Shares (NYSEArca:GLD), the world's biggest gold
ETF, lowered at the opening, dropping 4 percent in early trade as
it slid to levels not seen in nearly three years, and gold bullion
prices broke through the $1,300-a-troy-ounce mark.
The fund also continued to lose assets. It has now bled $590
million in the past two weeks alone, putting total year-to-date
asset losses at $16.93 billion. It ended 2012 as a $72 billion
The Fed seemed to offer for the first time a clearer timeline of
when it plans to taper off the massive liquidity it has been
pumping into the market through $85 billion a month in bond
purchases, saying Wednesday it could moderate those purchases later
this year and stop them completely sometime in 2014.
An end of QE would likely result in higher long-term interest
rates, which have been pushed to historic lows on account of the
Fed's massive bond-buying program. Roughly a year ago, yields on
10-Year Treasury notes were hovering 1.4 percent.
These low rates have encouraged investors in recent months to
pile on risk, taking U.S. equities markets to record highs earlier
this year despite an economy that's still being slowed by
relatively high unemployment, huge debt levels, and tighter
Bernanke is expected to take the pace of the unwinding of this
program slowly, but investors have already started to bail out on
their fixed income holdings in recent weeks.
So far in June, investors have yanked a net of $5.7 billion out
of U.S. fixed income ETFs, according to data compiled by
The iShares Barclays 10-20 Year Treasury Bond Fund
(NYSEArca:TLH) slipped to its lowest price since March 2012, while
its longer-duration counterpart, the $3 billion iShares Barclays
20+ Year Treasury Bond Fund (NYSEArca:TLT) has erased two years of
gains to return to levels not seen since August 2011.
In another segment of the bond market, yields on Fannie Mae
mortgage-backed securities-those used to guide lenders into the
bond market-jumped to 3.21 percent in their biggest move since
mid-2009, the Journal reported.
The $6 billion iShares Barclays MBS Bond Fund (NYSEArca:MBB) was
trading Thursday at its lowest level since April 2011. It has now
slid 3 percent in the past month alone. Similarly, the Vanguard
Mortgage-Backed Securities ETF (NYSEArca:VMBS) was revisiting
levels not seen in two years.
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