The Federal Open Market Committee (FOMC) meetings on 18-19^th June, 2013 showed positive response to the US economic condition followed by the unemployment claims reduced by 15,000 on 16^th August. The rallying up of the economic condition made the Federal Reserve to slowdown its quantitative easing policy. As most of the economic decisions and market conditions depends on the Federal Reserve decisions, its decision to curb down the $85 billion bond purchases monthly also showed its effect in the US financial market.

After the global financial crisis, the investors have disbelief in the stock market. So, they are much more likely to invest in the risk-free securities. This has increased the demand for risk-free securities. This increased demand of the risk-free securities which has indeed increased the yield on the US treasury bills. This shows that there is an inverse relationship between the QE and the yields on treasury at the present context.

The objectives of the committee is to maximize the employment and maintain price stability, it has showed its way ahead by the reduction in unemployment rate and the curbing of the debt purchases. Though the rated securities did not show positive response to the Federal’s voice, the low rated bonds yield had upward returns. Also, the upcoming FOMC meeting on 21st August have created dilemma towards investors on its decision whether Fed would look forward for a dovish or hawkish approach.

The scenario created has increased the demand for the loans especially the “covenant-lite” loans. Since there is also an inverse relationship between market interest rate and longer bond yields, the increased demand of the US treasury has enhanced the yield rates on long term bonds and securities.

As the US is a consumption-based economy spending about 80% of its income, the tapering of the QE will increase the money supply in the economy. This increased money supply will then create demand for goods and services. In addition, the investor’s increased holding of money supply will create a platform to make investment through portfolios. But, as stock market has lost its confidence among investors, and gold market is still on edge, they are looking forward for other levels of portfolio. This has induced them to invest in riskier debts.

Looking towards to the current economic status and the Fed policy, the improved US economic status has down turned the investment in the high classed stocks. Although, there are several indicators affecting the economic conditions like housing data, the Fed’s decision on QE has played a major role in determining the investor’s sentiment.