The Trouble With Treasuries This Summer

By Frank Smietana:When the FOMC announced QE1 on November 25, 2008, Treasury Bond prices rallied immediately, reflected in a 17.7% gain for TLT by December 30, 2008. Prices then completely erased their gains, sliding back to pre-meeting levels by February 8th, 2009. Equity prices likewise saw a short term boost, but gave back those gains even faster than bonds.

By Ben Mountifield:In November 2008 the US Federal Reserve announced its first program of Quantitative Easing, "QE1". Following the announcement the S&P 500 index rose 37.5%. The US market also rallied strongly on the announcement of QE2 and Operation Twist. However in the wake of QE3 which was announced on 13 September, the S&P has fallen 3.2%.Below is a chart of the S&P 500 index which shows the announcements of QE1, QE2, Operation Twist and the Fed's latest round of stimuli, QE3.

WASHINGTON – The Federal Reserve on Wednesday left in place its monthly US$85-billion bond-buying stimulus plan, saying economic growth had stalled but indicating the pullback was likely temporary. Describing the nation’s job market as continuing its modest pace of improvement, the Fed repeated a pledge to keep purchasing securities until the outlook for employment improves substantially.

By Eric Parnell:The stock market has made one thing abundantly clear in the early days of the second quarter: It still cannot stand on its own at current levels without the continued support of additional stimulus from the U.S. Federal Reserve. And with the latest Fed stimulus program set to end in June, it may be shaping up to be another cruel summer for stocks.

On September 21, 2011 in a Federal Reserve Press Release the Fed announced "Operation Twist" purportedly to drive down long-term rates and drive up short-term rates.

By Tim Shaw:So what is "Operation Twist"? Basically the Fed will buy $400B worth of longer dated bonds and fund the purchase by selling an equal amount of bonds with the maturity of 3 years or less to fund that purchase. This will all be done prior to June 2012. The feds balance sheet will not expand as it did during the release of QE1 and QE2 (quantitative easing).

By Eric Parnell:After a rousing start for the first three months of 2012, the stock market (SPY) has stumbled out of the gate thus far in the second quarter. And after posting such a strong advance on what could be argued has been a rather shaky foundation these last few months, the potential for a meaningful correction is increasingly rising, particularly with the end of the latest Fed stimulus program now looming around the corner in June.