Here's a nice graph showing what QE actually did

An post unrelated to QE at Advisor Perpsectives included this nice graph:

This image clearly demonstrates what we have previously discussed here at MNE- that despite the common predictions, the Fed's Quantitative Easing programs actually brought 10yr bond yields up, not down! The story goes something like this: 

So the Fed announces each round of QE and stokes off inflation fears, causing prices to go down. Then, when the boys over at the NY Fed SOMA desk actually begin buying, they put in bids near this newer, lower price, and actually end up locking in these lower prices. Further, the quantity of their purchases during each QE isnt actually enough to affect prices substantially. Then when QE ends, inflation fears go away, and bonds rally. Prices go up to where they were before each QE announcement, and the Fed can book gains (ie, losses to the private sector) if they ever have to sell. Somehow, this is perceived as "getting the best deal for the taxpayers", as if taxes have anything to do with this process.

Takeaways here are:

1)The quantity of the Fed’s Tsy purchases are actually too small to bring prices up

2) But they are large enough to scare other bondholers into selling...(more are net sold than bought?), so prices actually go down

3) QE ends, then inflation fears subside and people go back into bonds, (the risk-off trade), bringing prices back up

4) and the Fed is bidding too low anyway, because they are afriad of taking too large a loss if prices go down more, even though this would not matter at any fundamental level. The fed is monopoly issuer of reserves, so it doesnt matter if they take big losses, since they are self funding. This may hurt the amount they can put towards operating costs, and reduce their contribution to “deficit reduction” which they may like doing, due to the politics.