The Federal Reserve's most recent monetary stimulus has negatively impacted Treasury bonds. As part of its QE3, the Fed is looking to buy $40 billion in mortgage-backed securities every month in an attempt to maintain low interests until 2015. But investors selling off treasuries is generating the opposite effect in terms of the Fed's goal of lowering interest rates. Investors are now allocating more money toward stocks, corporate bonds and commodities.
With these developments in the bond market, it is expected for inflation to rise over the long-term. The 10-year yield of Treasury bonds is expected to hit two percent according to the investment banking bulge bracket Goldman Sachs. 2013 will also see the Treasury bond market take further hits.
Fed chief Ben Bernanke's job looks to be in serious jeopardy if Mitt Romney becomes President because the Republican candidate has been very open about his dislike of the Fed's policies in the last four years and has stated that changes will come. Moreover, the Romney campaign must be licking their lips by the Fed's latest monetary policy move that has backfired on them.
But the rally into stocks may be what the Fed wanted after all as they may want investors to move fixed-income securities to growth-oriented ones. The private sector will then be greatly assisted and mortgage rates will reduce making consumers happy to spend more. This is important because there is a threat that the U.S. economy will fall back into another recession with spending programs and tax breaks that could expire at that time.