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Is Taper Tantrum coming again?
What is Taper Tantrum?:
U.S Treasury yields surge in 2013 and after that, investors found Federal Reserves slowly decreasing Quantitative easing program. The Fed announced that it would be reducing the Treasury Bond purchases in the open market to reduce the money flow into the economy. As a result bond Yields rose and Equity Markets fell and it is called Taper Tantrum.
Understanding Taper Tantrum:
After 2008 financial crisis and recession U.S Fed reserves announced a policy of quantitative easing (QE) which involves purchasing bonds and other financial assets to provide liquidity in the market and to promote the economy. A quantitative easing policy designed to put more money in the market and support the economy has been considered for the short term only. Economists believed if Fed Reserve supports the economy for a long time, will become consequences. Tapering which means slowly reducing the money flow into the economy was done by Fed reserves in 2013.
In 2013 World markets are recovering from the 2008 global financial crisis. Between 2008 to 2013 Fed Purchased $2 Trillion in treasury bonds and other financial assets to support the Market. Investors depend on Fed support for a long time. Fed Reserves announced the policy of reducing the bond purchases shocks the investors because with reduced bond purchases bond prices would fall. Bond investors immediately selling the bonds, results in bond yields on U.S Treasuries shot up. When Bond Yields decline, equity markets will outperform and as bond yields rise equity market returns fall.
Economists Believed Stock markets would follow the tapering effect and the market would fall. But Investors understood the Fed bond purchase is for supporting the market. Dow Jones industrial average( DJIA) fell temporarily. Also, there were many reasons for not falling in the stock market. Fed again announces bond purchases in 2015 and also they feel the economy is recovering and the market was in good health. The Indian market was not much impacted by Taper Tantrum. Even in the 2008 financial crisis, India became an investment opportunity for global investors, FDI investments increased by 45%.
Look into this Data:
Kundan Kishore
Curator of " A Complete Course on Indian Stock Market "