Credit Suisse analyst: No more QE2? No problem

The end of QE2 should be a non-event, according to a Credit Suisse AG analyst.

Although the end of the Federal Reserve’s second quantitative-easing program next month has many people worried, it won’t have a major impact on the markets, said Pankaj Patel, a managing director at Credit Suisse.

One reason is that institutional buyers will step in as they did after QE1 ended in March, Mr. Patel said last week at the annual meeting of the National Association of Active Investment Managers Inc. in San Diego.

What’s more, the Fed is a smaller player in the Treasury market than most think, holding about 14% of outstanding bonds, versus more than 25% in 1998, he said.

And many big investors have prepared for the end of QE2 by shorting bonds, Mr. Patel said, so huge further sales aren’t expected.

Credit Suisse says to look for the Fed to stop talking about the “extended period” of low rates this year and to begin raising rates next year.

Mr. Patel’s comments surprised some financial advisers at the conference.

The biggest concern about the Fed’s action in the bond market isn’t its holdings of Treasury debt but its role in buying new issues, said Will Hepburn, founder of Hepburn Capital Management LLC and a former NAAIM president.

“Rates have to rise to attract those [institutional] buyers,” he said.

The rise will be enough to “shock” the markets, Mr. Hepburn said.

Many NAAIM members “are cynical of a [stock market] rally like this,” said Anthony Welch, co-founder of Sarasota Capital Strategies Inc.

The central bank has been like “a financial crack dealer” that will have a hard time unwinding its expansive monetary policies, Mr. Welch said.

E-mail Dan Jamieson at [email protected].

Related Topics: Federal Reserve