should anticipate that, eventually, the world’s central banks will have
to stop and reverse quantitative easing (QE). While QE is still being
implemented, the U.S. Federal Reserve has signaled that it may stop the
policy, depending on U.S. economic conditions. The recent turbulence in
the securities markets reflects uncertainty and confusion as to how and
when the Fed and other central banks will stop and reverse QE.
- In the best-case scenario, QE’s end would be preceded by stronger and
sustained economic growth, enabling assets to replace their reliance on
QE-based liquidity with support from solid earnings and job growth.
Alternatively, central banks, believing asset prices are leading to
another bubble, would rein in QE because the costs outweigh the
- Given the high level of uncertainty as to how a QE wind-down will
eventually play out, real estate investors may have to endure a
potential period of market turbulence with highly volatile bond yields.
This means investors should consider their liquidity and refinancing
needs to avoid tapping the debt market in the midst of a prospective
bond yield blowout.
Download the Global ViewPoint | June 2013