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Financial markets in October were dominated by speculation about the imminent implementation of a second round of quantitative easing (QE2) by the U.S. Federal Reserve. Fed officials gave broad hints that it would soon start buying large quantities of U.S. bonds, but investors were left to guess about the size and effectiveness of the coming programme. The bond marketed fluctuated in a narrow range as investors tried to anticipate the potential impact of QE2 . Equity markets tended to be correlated with bond markets in that environment, because a large quantitative easing programme would mean more bond purchases and higher bond prices, as well as greater economic stimulus that would be beneficial for equities, while a small or unsuccessful QE2 would have the opposite effects. The DEX Universe Bond index gained 0.22% in the month, as interest income offset small average price declines.
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