The fed is buying upto $750 billion in mortgage-backed securities and upto $300 billion in longer term treasuries. They are putting additional 1.05 Trillion to buy bonds and further expanding their balance sheets.
With fed being about 25% of the mortgage market, how is there going to be price discovery? This will keep the bond yields artificially low.
It's going to be interesting how China reacts to this. On one hand, they already own a big chunk of treasuries whose prices just went up. But the yields are going to be artificially low on the new treasuries they are going to be buying.
If you are a regular investor, would you buy the treasuries? As the yields on these bonds are artificially low. So it's going to be interesting to see if there is less demand for the bonds. Remember Warren Buffett said last week that there was a bubble in treasury. Now it's a bigger bubble.
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