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Alternative Market Briefing

Fed’s QE3 is not creating bubbles in asset classes

Tuesday, July 02, 2013

Benedicte Gravrand, Opalesque Geneva:

Robert Schumacher, Head of US Fixed Income at AXA Investment Managers, recently shared with Sona Blessing on Opalesque Radio his interpretation and analysis of the Fed’s Monetary Policy Path and its impact on the economy and asset classes.

He explains the objective of quantitative easing (QE) as "a theoretical approach to when interest rates really can’t go below zero. The concept is to provide liquidity into an economy through outright purchases of securities. But it also has another facet to it. That facet is to remove duration risk and interest rate risk from the current holders of the securities that the central banks are looking to issue. In other words, they will sell them those securities because they are ready heavy buyers for those and then take the proceeds from those sales, and perhaps reinvest those into an area of growth or other investment that is in line with what the central banks would like to see as they move the economy forward."

When the Fed announced QE, the reaction in the safest assets, such as the U.S. government securities, was a rise in interested rates, he notes. The reason why, just when the Fed was stepping in to buy those securities, is that the Fed was trying "to encourage investors to take more risk," he continues. "Therefore owning the risk-less assets does not m......................

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