Assessing the end of the Fed’s easy money regime’s impact on ETFs

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Primary market activity in Treasury and corporate bonds

The primary capital market for bonds is for original sales of debt securities directly from issuers to purchasers. Bond sales could either be made by the government to finance its debt or by corporates wishing to undertake debt for a variety of reasons, including funding investments and acquisitions.

Financial markets closely watch the Treasury auctions held by the U.S. Department of the Treasury. Besides the bond market, they strongly influence the returns generated by other assets, including stocks (SPY), currencies (UUP), and real estate.

Part 1.1

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The U.S. Department of the Treasury auctioned $110 billion worth of Treasury bills, notes, and bonds (TBT) in the week ended September 12. The much-watched and economically sensitive ten-year notes (Part 3) and 30-year (TLT) bonds auctions (see Part 4) also took place last week. Primary market activity in corporate bonds was strong, with ~$39 billion in new debt sold (see Parts 7–9).

This series is a weekly update on the trends in the U.S. investment-grade bond markets. You’ll read about both primary and secondary market activity in both the U.S. Treasury (Parts 2–4, 11–13) and corporate bond (Parts 5–7) markets. We’ll also cover major influences driving yields and returns for Treasury and corporate bonds ETFs (Parts 8–10).

Part 1.2

The end of the Fed’s easy money regime and Scotland’s vote

Markets have been volatile (VXX) lately. The Fed’s main policy-making body, the Federal Open Market Committee Meeting (or FOMC) holds its sixth meeting of the year on September 16–17. The Fed’s taper is expected to continue at the present pace, reducing monthly bond purchases by $10 billion. The Fed will also probably announce the end of monthly purchases at its October meeting.

The result of Scotland’s referendum deciding on the country’s independence from the UK is also expected this week. We’ll be analyzing these influences on financial markets and ETF investments in Part 14 of this series.

Three-year Treasury notes auction

You can read a detailed analysis of the Treasury Department’s monthly auction for three-year Treasury notes in the next part of this series.

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