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New Era of Bond-Market Volatility Begins as Fed Fights Inflation

  • Fund managers brace for turbulence as QE is reversed
  • Floating-rate notes, TIPS, options are eyed as hedges
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Powell Says Fed to Double Taper Pace in Inflation Pivot

The hottest rate of inflation in four decades has ushered in a wilder era of bond-market volatility, causing investors to shop for hedges to protect their portfolios.

Bouts of Treasury volatility tend to erupt when hawkish shifts in central bank policy loom over the market. That has already started after Federal Reserve Chairman Jerome Powell said he was retiring the word “transitory” in describing inflation, helping send an index of expected swings in Treasuries to a 20-month high. The central bank’s final meeting of the year on Wednesday could set the stage for a more sustained period of turbulence should policy makers indicate a faster and longer period of monetary tightening is required to tame consumer prices.