Buy the Rumor, Sell the News - Bond Yields Could Even Go Down Once Fed Announces Tapering, Says Prominent Bond Strategist Major

April 8, 2021 9:14 AM EDT

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Steven Major, a renowned bond strategist and the global head of fixed-income research at HSBC, says that the bond market has been pricing in the possibility of the Fed starting to taper in the past six months.

The taper is “inevitable” while HSBC forecasts the taper to begin near the year-end, Major tells Bloomberg.

“The market is quite childish,” says Major.

The bond market valuations are much more than simply a cyclical narrative as drivers are of a long-term nature. Previous QE patterns show that markets bought the rumor and sell the news when it comes to tapering.

Hence, Major argues that bond yields may start going lower once the taper is officially announced.

Major’s colleagues, US economist at HSBC Ryan Wang, reiterated the belief that FOMC could begin to taper its asset purchases at the end of 2021.

‘FOMC wants to base any future decision to taper its asset purchases on how economic developments evolve rather than react to technical constraints or considerations that relate to the size of the Fed balance sheet. Chair Powell emphasized during his March press conference that the FOMC's future decisions on tapering or rate hikes would depend on actual progress as opposed to forecast progress towards its economic objectives. The March minutes reaffirmed that this is an important part of the FOMC's intended messaging and forward guidance,” Wang wrote in a note to clients.

Wang expects an unchanged federal funds target range at least through 2022.



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