Tapering is upon us at last. In a move that surprised no one, the US Federal Reserve announced on Wednesday that it would begin tapering its monthly purchases of Treasuries and MBS by approximately $15 billion per month, beginning immediately. Given the previous run rate of $120 billion per month, it would take 8 months for the tapering process to finish if done in linear fashion, meaning that the Fed’s asset purchase program would reach $0 in new purchases in June of 2022.
In other news, Friday’s payroll report exceeded expectations for job growth with 531k nonfarm payrolls added. The unemployment rate sank to 4.6% while underemployment dropped to 8.3%, both of which are new pandemic lows.
US stocks rallied in response to the news flow, with all three major US large cap indices finishing the week at all-time record highs. Small and midcap stocks were up even more sharply following the jobs report. International equities were mixed, with D/M higher while E/M in aggregate was flat.
Bond markets wobbled in the immediate aftermath of the tapering announcement but soon joined stocks in rally mode, with yields falling across the curve. Credit spreads remained stable as investment grade corporates clawed their way back very close to breakeven on the year.
Inflation-sensitive assets were mixed last week: oil prices fell, gold prices rose, and bitcoin finished lower.