Before the actual announcement from FED have happened, market has already responded to the expectation on zero interest rate. FED funds rate hit a record low of 0.06% ever since 1954.
3-month and 6-month T-bill yield rate lowered to 0.01% and 0.25% respectively. 12-month T-bill yield rate was only 0.57%.
Even longer term note and bond yield have decreased. Market is lust for shelter as well as potential for some speculation. Exit period of the bonds issued may come before the offical decrease of interest rate ceases at 0%, and government starts to issue higher yield bond to fund its stimuli plan. Yet, after issuance, any wave of speculation may increase. Companies that can be benefited from the stimuli plan may find their corporate bonds issued now may rise in the price during that period.
Another observation is that the T-note/bond-TIPS spread has turned around from deflation expectation to inflation expectation: 5 year inflation expectation is 0.14% and 10 year is 0.59%. Yet, both are small in magnitude.
Despite the expectation of huge money supply, the market does not expect a real inflation will go ahead. Depending on the scale of stimuli, raw materials prices may subject to a rebound due to USD depreciation and demand from infrastructural projects.
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