Taper Tantrum Haunts World's Better Economy

Since Covid-19 has been spreading worldwide for one year, the US market faces bigger worries. Now inflation has converted to the most considerable outlier risk that could cause the most havoc. As government bond yields have spiked to pre-pandemic levels, inflation has become a significant factor in the market. It manifests by the "breakeven" rate between 5-year Treasury yields, and inflation-indexed bonds have surged to their highest level in nearly 13 years. Recently, the 10-year Treasury yield touched a new 13-month high of 1.75%. The government bond yielded 1.72% around the time of the stock market close. Also, the public speculates that the move to the 2% level in the 10-year Treasury note could cause a stock market correction, or a more than 10% drop and a jump to 2.5% would obtain bonds more attractive than equities. Jerome Powell, the US Federal Reserve Chairman, didn't resemble concerned about the recent bond yields ascension. He said that the central bank isn't ready to pull the plug on its bond-buying program, thereby avoiding a situation like the 2013 "taper tantrum" that occurred when investors got scared about the end of the last easy-money era.

Taper tantrum refers to the 2013 US Treasury yields resulting from the Federal Reserve announcement of its quantitative easing policy's future tapering. Quantitative Easing (QE) involves a large purchase of bonds and other securities by the Federal Reserve. In theory, this method increases liquidity in the financial sector to maintain stability and promote economic growth. However, pouring a massive amount of liquidity into the financial markets opens the possibility of extreme inflation, which fuelled the Federal Reserve's decision to reverse its QE