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QE3 - The Fed, FOMC, Congress, and Election Year equals... ?
I think a more interesting question is how much of QE3 is priced into long term bonds. 20 year yields are at 2.13% (negative in real terms), while TLT is up 37% year-on-year.
How much more can long-term yields fall with QE3? Personally I'm long long-term treasuries in anticipation of QE3 but so seems to be everybody else...it's a crowded trade to say the least, and I'm going to start thinking of exiting if yields go a bit lower.
Let's say foreign entities and the central banks stop purchasing our treasuries, and the dollar starts to dive-bomb, along with the rest of the major indices. Sending our economy into a total downward spiral.
Do you think "day trading" will ultimately die? It's hard not to worry about our trading futures.
The Fed can just buy any paper the Treasury puts out, so I don't think that kind of catastrophic scenario is a possibility. Worst case you get a lot of inflation, which is a problem, but not that serious.
In any case, real rates are negative. People are paying money for the privilege of lending to the government. I don't think we're close to any kind of demand shortfall for treasuries.
