Commentary Despite mountains of evidence and ample warning, investors are mispositioned ahead of the Federal Reserve’s accelerated tapering plans. On Jan. 13, the New York Fed announced its new purchase schedule to start on Friday, Jan. 14, that will reduce its total purchases of U.S. Treasury and mortgaged-backed securities to $60 billion per month, which is half of the amount the Fed was purchasing each month before announcing a balance sheet taper. Investors who previously believed quantitative easing would lead to higher interest rates, and either sold or shorted the Treasury bond market to profit on the move, are now doubling down their bets on higher interest rates. Investors are almost certain that without the support of the Federal Reserve, nobody will want to purchase U.S. government debt. Yet, the large commercial banks must buy bonds with customer deposits as there’s an insufficient amount of loans to back all the …
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