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Bond Market Calm Is Threatened by Fed's $1.75 Trillion MBS Shift

  • ‘Convexity hedging’ seen triggering volatility in Treasuries
  • Fed may start paring mortgage-bond investments later this year
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Bill Gross Says He Doesn't Like Bonds Right Now

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As far as bond buyers go, the Federal Reserve is pretty laid-back.

Even as the central bank amassed trillions of dollars of debt to prop up the economy following the financial crisis, it didn’t hedge its holdings or worry about gains and losses that might keep ordinary investors up at night. This extreme buy-and-hold stance has had an incredible calming effect on the bond market. Volatility has plummeted to lows rarely seen in recent memory.