Taper Tantrum

Taper Tantrum came into news in 2013 when Ben Bernanke, chairman of the Federal Reserve at the time, hinted that the Fed would soon begin to taper (i.e., gradually wind down) its purchases of Treasury and mortgage-backed securities that formed the basis of its quantitative easing (QE) program. Over the course of time, the yield on the benchmark 10-year Treasury security rose more than 100 bps. This episode of sharply rising bond yields in the United States has become known as the “taper tantrum.”

It led to sharp depreciation of many emerging market currencies and lower prices for sovereign bonds in those economies. Decreasing prices of sovereign bonds of these emerging economies led investors to sell bonds of these markets. This generalized outflow of capital from the emerging world caused the currencies of most developing economies to weaken markedly.

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