Euro “Taper Tantrum” and Other Factors Spike T-Yields

Mario Draghi may be dressing up like Ben Bernanke for Halloween this year. Markets were expecting ECB bond buying to continue well into March 2017. But now, some reports from Europe suggest that the ECB may wind down bond buying by $11 billion a month. Markets reacted with the Euro spiking in value and bond yields rising, similar to the US Fed announcement regarding bond purchase tapering in 2013 (the 10 year T hit a multiyear high of 3.00%). Note that this is just a central bank indicating they are pulling back on the extraordinary stimulus of bond purchasing, not raising rates or selling any existing bonds. This shows how much markets have become dependent on measures once thought to be unthinkable. Other Factors: (1) More hawkish statements from Fed governors; (2) Oil prices (9.3% jump in crude futures in 4 trading sessions). TIPS (Treasury Inflation Protected Securities) yields now project a 1.68% inflation rate, closer to the Fed target of 2.0%; (3) Strong US economic reports, specifically ISM (service sector) and factory investment. The futures market sees a 64% chance of a Fed rate increase at the December meeting with several major bank economists predicting a 2.0% 10 year T yield by end of the year.   Stay Tuned.   David R. Pascale, Jr.