In analyzing the economic and financial market impacts of the QE announcements, what are the probable reasons for the changes in behavior of:

olong-term and short-term rates,

ocredit default swaps, and

oinflation expectations.

Hint: This question is asking for reasons, not a summary of the changes in the Tables. For example, 10 year Treasury yields declined 107 basis points in QE1. Why?

Table 1: Changes in Yields (in Basis Points) on Select Securities QE1 QE2

5-year Treasuries

10-year Treasuries

Agency MBS (10-year duration) Baa Corporate Yield

Credit Default Swapa

10-year TIPS

-74 -17 -107 -18 -107 -12

-81 -7

-40 2 -187 -25

a The credit default swap yield in this table corresponds to an index of Baa corporates.

Table 2: Changes in Yields (in Basis Points) on Federal Funds Futures by Maturity QE1 QE2

3rd month 6th month 12th month 24th month

-28 0 -27 -1 -33 -4 -40 -11

Table 3: Changes in Yields (in Basis Points) on Select Securities QE3

5-year Treasuries -6 10-year Treasuries -3 Agency MBS (10-year duration) -15 Baa Corporate Yield 0 Credit Default Swapa 0 10-year TIPS -11

a The credit default swap yield in this table corresponds to an investment grade index.

Table 4: Changes in Yields (in Basis Points) on Federal Funds Futures by Maturity QE3

3rd month 0 6th month 0 12th month 0 24th month -3