The outside chance that seemingly endless monetary stimulus could be on the road to withdrawal may upset bonds, yet traders expect Europe's latest troubles to limit any potential downside.
The 10-Year Treasury note has enjoyed a massive rally over the last three sessions, with yields hitting their lowest level in three weeks. Some investors are being drawn to bonds ahead of the U.S. Federal Reserve's policy decision on Wednesday.
The Fed's efforts to support an economic recovery has sent stocks on a tear, but also put a floor under bond prices. In September, it launched a third round of quantitative easing (QE), in which it will buy $40 billion of mortgage-backed securities per month, primarily in mortgage-backed bonds. Those open-ended purchases mean they will continue to flood markets with cheap liquidity indefinitely, in order to drive down unemployment.
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