So now we're all on tenterhooks until next Wednesday when we hear if the Fed has decided to reduce its monthly bond purchases. Traders, Treasurers, pension pot holders, emerging market Finance Ministers - we all feel a watershed is arriving.
However, this certainly will be no surprise. This is not 1994, with its surprise Fed hike and bond market rout. The Fed has done a fantastic job of delivering an unpopular message - the start of the end of cheap money - in a manner designed to cause the least possible market volatility, and maybe the still buoyant level of the S&P 500 is eloquent testimony to their success. The reasons for the S&P's resilience are important.
Developed market countries' stock markets have retained their poise because US bonds yields have been going up for a good reason, and that is the return of growth and optimism, not just in the US, but also in Europe and China. The rise in 10-year US Treasury yields from 1.4% to 3.0% is best described as a healthy normalisation, as it has been driven by a reduction in the all-pervading fear which has gripped the market since the Lehman bankruptcy, first, and then the emergence of the Eurozone crisis, once the depth of Greece's fiscal mess became clear.
This basic human response to seek safe-haven has played an equally important part as that of QE in keeping yields subdued.
Only in the last six months have we started to return to the 'normal' modus operandum, in which long term yields are the sum of compounded short rates and the risk premium, the latter being investors' judgement of future liquidity, credit, and fiscal and monetary policy uncertainty over the life of the bond.
Paradoxically, desperate safe-haven flight far outweighed those factors for US Treasuries, and collapsed the risk premium. We have now returned to a normal state of affairs, with the Eurozone crisis also 'in its box', as we all belatedly came to appreciate that political will would easily overcome any economic maladies.
This has lead me to the scary conclusion that, while the FOMC's pronouncements on 18th September may lead to a temporary rally in US Treasuries (especially if they lower the employment threshold for rate rises to 6% - a 50% probability in my view), but that will be a great opportunity to sell.
This is a bond bear market and companies, like Verizon, are very wise indeed to lock in cheap borrowing. Growth is on the rise worldwide (even rather anaemically in Europe), and I'm afraid the Fed won't have any room for hesitation driven by concerns over the effect of tapering on emerging markets, as was made abundantly clear by a couple of senior Fed officials at the Jackson Hole conference. No wonder, the Fed-haters in the Senate would have a field day if the FOMC seemed to be managing other countries' economies for them. (Of course, those Senators give no thought for the potential negative feedback effects that an emerging market crisis could have on the US).
Let's say we got no tapering, that will send stock markets soaring and give business confidence another boost - ultimately pushing yields higher anyway.