When the Fed Stops the Music

The Federal Reserve has been very clear about the fact that they intend to stop their quantitative easing program at the end of March. What that means in practice is that they are going to stop buying mortgage backed securities. Those mortgage purchases helped keep mortgage rates low. Interest rates on government bonds have begun rising in anticipation of the Fed’s plan to curtail the mortgage purchase program.


I recently liquidated funds holding mortgage back securities (Pimco Total Return Fund and TCM Total Return Fund). Our moving average stop strategy, which is based on share price trends, gave us a clear sell signal in December. Our decision to sell was further supported by the Fed’s plan to end their mortgage purchase program.

We continue to favor high yield (junk) bond funds. They remain in a low volatility uptrend. Also, high yield funds are generally immune to the day to day ups and downs of the stock market. At the moment these funds offer the highest risk/reward ratio available to investors. We like 'em!

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