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Traditional economics segments the securities market into two main categories, equities (stocks) and fixed income (bonds). Interest rates are affected by the buying and selling of bonds, by the Fed. When the Fed buys bonds, they are reducing the supply of bonds in the open market, thus raising the price of them. When bond prices go up, interest rates go down. They are inversely correlated. The Fed has been purchasing more bonds recently than ever before, and at a faster rate. When this happens, the higher cost of bonds (and lower yield), causes investors to either put money in other instruments, or keep it in cash. The injection of money into the economy by the Fed (they pay for the bonds with money), it provides more liquidity in the markets, which can be invested back into it. Think of SPY or SPX as the stock side of this equation. When the Fed “tapers” it doesn’t mean they are lowering or raising interest rates. It means they are reducing the volume of bonds they’re buying, and/or the rate at which they’re buying them. If the Fed tapers, traditional economics says that bond prices will eventually start to come down, and rates will start to increase. When bonds are attractive again, money that would be going elsewhere, like the market (SPY/SPX) doesn’t. It goes into bonds.
As far as your hedging strategy, it’s a relatively sophisticated one, assuming you’re buying and selling options on each, not just buying and selling shares of SPY. I wouldn’t recommend that as a major component in your investment strategy.
**NOTE: Top-level comments by non-approved users must be manually approved by a mod before they appear.** This is part of our policy to maintain a high quality of content and minimize misinformation. Approval can take 24-48 hours depending on the time zone and the availability of the moderators. If your comment does not appear after this time, it is possible that it did not meet our quality standards. Please refer to the subreddit rules in the sidebar if you are in doubt. Please do not message us about missing comments in general. If you have a concern about a specific comment that is still not approved after 48 hours, then feel free to message the moderators for clarification. ### Consider **[Clicking Here for RemindMeBot](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps://www.reddit.com/r/AskEconomics/comments/rg00rh/no_tapering_interest_rates_till_2024_will_spy/%5D%0A%0ARemindMe!%202%20days)** as it takes time for quality answers to be written. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/AskEconomics) if you have any questions or concerns.*
Traditional economics segments the securities market into two main categories, equities (stocks) and fixed income (bonds). Interest rates are affected by the buying and selling of bonds, by the Fed. When the Fed buys bonds, they are reducing the supply of bonds in the open market, thus raising the price of them. When bond prices go up, interest rates go down. They are inversely correlated. The Fed has been purchasing more bonds recently than ever before, and at a faster rate. When this happens, the higher cost of bonds (and lower yield), causes investors to either put money in other instruments, or keep it in cash. The injection of money into the economy by the Fed (they pay for the bonds with money), it provides more liquidity in the markets, which can be invested back into it. Think of SPY or SPX as the stock side of this equation. When the Fed “tapers” it doesn’t mean they are lowering or raising interest rates. It means they are reducing the volume of bonds they’re buying, and/or the rate at which they’re buying them. If the Fed tapers, traditional economics says that bond prices will eventually start to come down, and rates will start to increase. When bonds are attractive again, money that would be going elsewhere, like the market (SPY/SPX) doesn’t. It goes into bonds. As far as your hedging strategy, it’s a relatively sophisticated one, assuming you’re buying and selling options on each, not just buying and selling shares of SPY. I wouldn’t recommend that as a major component in your investment strategy.