Sep 14, 2012

A new twist in the tale: winners and losers of QE3

So who wins when new quantitative easing kicks in? And what will be the effect upon markets? David Llewellyn-Smith of Macro Investor reports.

QE3 is here. The US Federal Reserve will finish Operation Twist and launch open-ended buying of mortgage-backed securities (MBS) at $40 billion per month. What will this do and what will be the effect upon markets?

The Fed will be buying agency-backed MBSs. These are those MBSs that are packaged and sold by the government sponsored enterprises, Fannie Mae and Freddie Mac (and others), which constitute most of the US mortgage market. These securities are, in turn, linked to the yield of the 30-year government bond, which the Fed is also driving down using its existing Operation Twist.

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