Sir,
These days we keep hearing about taper tantrum in bonds market.
I tried to read it from online and sources available on website.
But Couldn’t understand it properly .
could you throw some light on it?
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I’ll try answering you in brief – Due to Covid most of the countries have provided Quantitative easing(QE) measures in there countries, the central banks are buying securities, decreasing the interest rates etc. So that the country can recover from the economic shock caused by the covid, So as the effect of QE are reaching to the people and economy is also recovering. Central banks will start decreasing the QE measures just to tackle the problem of inflation which is caused due to QE. If central bank start increases the Fed rate in the market, so eventually the bond rate demanded by the investors in the market will also increases maybe at a higher rate, so due to this rapid increasing of the interest rates, the bond prices will start falling very rapidly ultimately causing panic in the market, which will further sale of bonds, this phenomenon is known as Taper tantrum.