IMF: Start of Fed Tapering may cause Substantial Bond Losses

Monetary tightening in the US threatens to expose financial excesses and vulnerabilities that could wipe trillions of dollars off bond markets, the International Monetary Fund warned on Wednesday.

If the Federal Reserve’s likely move to start scaling back its asset purchases or fallout from a possible US failure to lift its ceiling on public debt raise long-term interest rates by 1 percentage point, the IMF’s Global Financial Stability Report (GFSR) estimates that the market losses on bond portfolios could reach $2.3 trillion.

In a world of heightened financial stability risks, demonstrated by the flight to safety from emerging markets in the summer, the fund is concerned that large elements of the world’s financial system remain vulnerable to stresses that might ensue as the extraordinary policies of the post-crisis period are scaled back.


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