QuoteOriginally posted by: Gmike2000QE is having exactly the opposite effect on yields of what was expected.I don't know about that. Bernanke said over and over that he would do things to raise inflation expectations. It seems obvious this would cause yields to rise. The point of my "What would happen to yields if Bernanke said he would buy all of them?" question was meant to ask if it is possible to create inflation expectations and lower yields at the same time. I felt it was obvious if he bought anything less than all of them, that yields would have to rise steeply (remember the two-tiered equity tender offer analogy where puts trade sky high relative to the spot price because of the back end). Would this hold true if he bought all of them, would it get worse and worse as he approached promising 99%, and then get better if he promised 100%?If he said he was going to buy all of them and burn them, in my mind, created a sort of simpleminded knife on edge. Buying all of them would create ridiculous inflation, at the same time as hypothetically shortening all their durations. But without actually locking in a purchase price in the forward market, there is no guarantee of being able to sell them at any particular price, meaning at any foregone yield. More likely they would sell at the market price knowing inflation. Unless you believed Bernanke intended to get his shirt robbed at ridiculous prices away from the market, like Japanese intervening in the yen.There are two alternative explanations for bond yields recently, A) yields would have continued to fall, except Bernanke's plans for inflation began to weigh on prices - meaning people began to expect higher yields from QE - or B) traders expected QE to lower yields, but increased borrowing demand overwhelmed this and capped prices.It may be that people expected lower yields resulting from this particular QE program as you suggest. Or it may be that people expected a larger QE program to get the same inflation expectation. So inflation expectations were held constant with the announcement of the QE size, but duration was extended by the smaller-than-expected QE size, resulting in a drop in yields.