Individual Investors


Fed Taper Wasn’t a Tantrum After All


Back in late May 2013 when previous Fed Chairman Ben Bernanke first suggested tapering the central bank’s asset purchase program, volatility levels elevated in capital markets and the moniker “taper tantrum” was born. Many expected the yield of the 10-year U.S. Treasury to significantly rise. In fact, its yield increased nearly 100 basis points (1.00%) between late May and early September 2013 before the Fed began the tapering process (Figures 1 and 2). During those months, investors seemed challenged by the premise to substantially reduce their allocation to fixed income.

Now that the tapering process is nearing an end and markets are anticipating a six-month window before the first fed funds rate hike, striking a balance in your portfolio is a better option than making a binary decision to own fixed income or not. The evidence for this view is the blue-sky conditions that have prevailed throughout the tapering process.


May 22, 2013 Bernanke Testimony


Taper Suggested


U.S. 10-year Yield: 1.90%

FOMC Meeting

Taper Amount

U.S. 10-year Yield

December 18, 2013

$85 billion to $75 billion


January 29, 2014

$75 billion to $65 billion


March 19, 2014

$65 billion to $55 billion


April 30, 2014

$55 billion to $45 billion


June 18, 2014

$45 billion to $35 billion


July 30, 2014

$35 billion to $25 billion


September 17, 2014

$25 billion to $15 billion


Whatever the reasons for the benign environment in which the Fed was able to exit QE3, the evidence is clearly favorable. Additionally, nearly another 12 months have passed, allowing the Fed to continue to hold purchased securities on its balance sheet without the need for a market-induced forced sale. Maintaining those securities on the balance sheet and allowing them to naturally mature has always been the optimal outcome. To date, that approach is working perfectly.

So, as the clock ticks down on the first rate hike, the price action of the past 10 months should serve as a reminder that ominous forecasts are best viewed as headline grabbers than a reason to significantly alter portfolio allocations.

It appears that the Fed’s taper wasn’t a tantrum after all….

Figure 1: FOMC Asset Purchase Tapering, November 2013 to Present
Figure 1: FOMC Asset Purchase Tapering, November 2013 to Present
Source: Bloomberg

Figure 2: U.S. 10-Year Treasury Yield, November 2013 to Present
Figure 2: U.S. 10-Year Treasury Yield, November 2013 to Present
Source: Bloomberg

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.