Taper Tantrum

Dated events

1. May 22, 2013 · Bernanke tells Congress the Fed could slow its bond purchases
   Fed Chair Ben Bernanke told Congress the Fed might start pulling back its massive bond-buying program if the economy kept improving. This scared investors because the Fed's buying had been keeping borrowing costs low worldwide, and the mere suggestion of stopping made people rush to sell bonds and pull money out of poorer countries. Over the following weeks, interest rates on U.S. government debt shot higher and currencies in countries like India, Brazil, and Turkey dropped sharply.
2. June 19, 2013 · Bernanke lays out timeline to wind down stimulus
   After a Fed meeting, Bernanke gave a press conference where he outlined a specific plan to gradually reduce the Fed's bond purchases, possibly ending them by mid-2014. This made the fear much more concrete, investors now had a schedule for when the easy-money support would disappear, so they started demanding higher returns on bonds and pulling money from riskier investments. In the days that followed, borrowing costs around the world jumped and stock markets in emerging countries like India and Indonesia fell sharply.
3. Aug. 19, 2013 · Emerging-market currencies slide, rupee at record low, as taper fears peak
   Currencies in India, Indonesia, Brazil, Turkey, and South Africa fell steeply as investors kept pulling their money out, expecting the Fed to start reducing its support in September. These countries depended heavily on foreign money flowing in, and the prospect of that money drying up made their currencies and bonds lose value fast. India's central bank and others were forced to raise interest rates and impose emergency measures to stop the bleeding.
4. Sept. 18, 2013 · Fed unexpectedly keeps bond purchases at $85 billion a month
   Despite months of warnings, the Fed announced it would keep buying bonds at the same pace, saying the economy wasn't strong enough yet. Markets had braced for the pullback to begin, so the surprise delay brought a wave of relief, stock prices jumped and bond yields dropped as investors realized the easy-money era would last a bit longer. This pause gave emerging-market countries some breathing room, though the underlying worry about an eventual pullback remained.
5. Dec. 18, 2013 · Fed announces $10 billion cut to monthly bond purchases starting in January
   The Fed finally announced it would start cutting its monthly bond purchases by $10 billion, beginning the long-anticipated wind-down of its stimulus program. By this point, markets had spent seven months getting used to the idea, so the reaction was much calmer than the panic in May and June. The smoother response showed that the real damage had come from the surprise of the original hint, not from the actual policy change itself.

Assets named in this scenario · 5

Bitcoin (BTC)iShares 20+ Year Treasury Bond ETFiShares MSCI Emerging Markets ETFSPDR S&P 500 ETF TrustVanguard FTSE Emerging Markets ETF

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