What you don’t recall about the taper tantrum

The jump in global bond yields this past month has drawn many analogies to the so-called taper tantrum of 2013, a market upheaval triggered by comments from then-Federal Reserve Chair Ben Bernanke about gradually reeling back quantitative easing. Unfortunately, these references don’t accurately capture that pivotal episode, or the circumstances around it. Without fully understanding what unfolded almost a decade ago, it’s hard to properly assess the challenges confronting officials today, let alone anticipate what comes next.
May 22, 2013 was a bright Wednesday morning in Washington, shortly before the Memorial Day long weekend and the unofficial start of summer. The Joint Economic Committee of Congress, not the most influential panel, was listening to Bernanke testify. His written text, where most consequential Fed signals are typically found, was boilerplate. It was an exchange with Representative Kevin Brady, the Texas Republican who led the committee, that caught the attention of traders. He asked Bernanke when the Fed might begin to step back its asset buying, one of many measures deployed after the global financial crisis. “We could, in the next few meetings, take a step down in our pace of purchases,” he said. Bernanke’s next few sentences were laden with caveats. It was very careful stuff, hardly declarative and certainly not an announcement.
Sitting in my office across town, where I was responsible for Bloomberg News’s economics coverage, the back-and-forth didn’t seem particularly striking. Minutes of the past few meetings of the Federal Open Market Committee had conveyed roughly similar messages. I was looking forward to spending the coming week by the beach in North Carolina with my son. The remarks didn’t seem like an epochal event that would delay my plans. I went ahead with the trip.
Yet each time I checked email and messages, there were fresh commentaries about the end of QE, a Fed blunder or financial tumult in anticipation of higher rates. Did I miss something? Markets told me I had. By the time trading closed that day, the yield on the 10-year US Treasury note surged 11 basis points, breaching the 2% mark. Trading volume popped to the most since 2004. Markets convulsed in Europe and Asia and interest rates on emerging-market debt climbed.
Now, as Treasuries are in upheaval once again, some similar questions are reviving. Investors are wary that growth and prices will pick up faster than the Fed anticipates, and have started to question official pledges of ultra-low borrowing costs into the foreseeable future. But 2021 isn’t a carbon copy of 2013. A couple of key differences are being overlooked in the rush to find a suitable historical analogy. First, in 2013, there was the unanswered question of succession.
—Bloomberg