QE2 is just about done. But the Federal Reserve will still be buying massive amounts of long-term Treasuries.

In fact, the Fed's purchases over the next year will likely be at least $300 billion. That's half the size of QE2 -- even if QE3 never takes place.

While the Fed's efforts to pump about $600 billion of new cash into the economy over the last eight months comes to an end this week, the program, known as quantitative easing or QE2 for short, was not the only way the central bank was an active buyer of Treasuries.

Since last August, the Fed purchased $250 billion in long-term Treasuries in addition to the QE2 purchases. That's because it was reinvesting the principal from other securities that matured.

Assuming the Fed keeps reinvesting, as it said it would earlier this month, it will continue to be a very big buyer of bonds in the months to come.

"We still see the Fed being a major buyer of Treasuries, and giving the market some support," said Kim Rupert, managing director of fixed income for Action Economics.

But those purchases may not push yields, which move in the opposite direction of their price, lower for that much longer.

Rupert said she expects bond yields to rise even with the Fed's continued purchases. She said some investors who bought Treasuries recently in a flight to quality will unwind those positions. If the economic outlook improves later in the year, that could also lift interest rates.

The additional Fed purchases will have an impact though. Rupert said it should "slow the updraft in yields in a measurable way."

The Fed still has more than $1 trillion in mortgage-backed securities, debt issued by government-sponsored firms Fannie Mae and Freddie Mac and other long-term bonds on its balance sheet.

While not all of this debt is set to mature in the next few months, the Fed still has a lot at its disposal to roll over into new bond purchases.

Of course the Fed could decide to stop reinvesting the principal of maturing securities. But that could almost have the same effect of actually raising interest rates. It would take significant amounts of cash out of the economy.

Even though some Fed policymakers are worried about the impact the bond buying has had on the dollar and inflation, the Fed does not seem ready to remove all its stimulus just yet. After all, the central bank did just issue a gloomier forecast for growth and unemployment through the end of 2012.

"Most of us can agree the economy is not going gangbusters and it's not a self-sustaining recovery yet," said David Coard, director of fixed income sales and trading for The Williams Capital Group. "For the foreseeable future, the Fed will have to maintain an accommodative stance. It's the only game in town."

Warnings from all three credit ratings agencies didn't do it. Seven weeks of talks among lawmakers didn't do it. Maybe President Obama's talks with Capitol Hill brass will do it.

But as of now, there's still no debt-reduction deal. And many lawmakers are still demanding one in exchange for their vote to increase the debt ceiling.

Here's an idea: Even if they can't come up with a deal by Aug. 2, lawmakers should raise the debt ceiling anyway. Then they should make a pot of coffee and go back to hammering out a debt-reduction plan.

Fiscal responsibility isn't a one-off proposition; it's an ongoing process.

If Congress fails to raise the debt ceiling by Aug. 2 -- the day when the Treasury Department estimates it will no longer be able to pay all the country's bills -- any number of damaging and utterly preventable scenarios could occur.

Deadbeat nation: For starters, the United States would look ridiculous. The debt ceiling needs to be raised because of obligations that Congresses past and present chose to incur.

Not raising the ceiling would signal to the world that Americans are willfully choosing not to pay their bills. The message won't be "We can't pay." It will be "We could pay, but we've decided not to. Sorry."

Market mayhem: To date, investors have been trading on the assumption -- the rock-solid belief, actually -- that there is just no way Congress would fail to raise the debt ceiling in time.

If Congress dashes those expectations, no one can know exactly how the markets will react. But most think markets will react, and not well.

Some bond experts expect that contrary to popular belief, Treasury rates won't rise but stocks may tank. In other words, there will be a move out of risk-based assets and a flight to safety in bonds.

Bond experts to Congress: Don't mess it up

So interest rates may stay low, but Americans' investments get whacked.

Or, Treasury yields could become volatile and start to climb as investors smell political instability in Washington. That would push the cost of U.S. debt higher.

Hopping mad republic: If Treasury is technically and legally able to prioritize the payment of interest to bond investors, the country may avoid the kind of default that would trigger rating downgrades.

A growing number of lawmakers say that it's OK not to raise the debt ceiling as long as Treasury continues to make payments to bondholders.

But that doesn't mean there wouldn't be seriously negative consequences.

"Someone -- perhaps millions of someones -- won't be paid on time. Contractors, federal workers, program beneficiaries, or state and local governments will suddenly find themselves short on their cash flow," former Congressional Budget Office Donald Marron wrote in a recent op-ed in the Christian Science Monitor.

That could hurt the economy, which is still trying to find its sea legs, and won't do much for the country's mood.

Damaged reputation: Even if bond investors continue to be paid, investors and credit rating agencies won't take it lightly when Treasury has to delay payments to others.

Such delayed payments -- and the public anger that would result -- could cause investors to worry that even if they're getting paid today, tomorrow may be another story. And they could trade on that concern, even if it's unfounded. That, in turn, could cause interest rates to rise.

Fitch Ratings Agency said it would put the country on "Ratings Watch Negative" in such a scenario.

"Extensive payment arrears to suppliers of goods and services to the government ... would damage perceptions of U.S. sovereign creditworthiness and signal growing financial distress," the agency said in a recent report.

The S&P already has already downgraded its credit outlook on the United States to "negative" from "stable." And Moody's is considering doing the same.

Downright default: This is the very worst and still least likely of outcomes, because most believe that there's no way the U.S. government would not pay its bondholders.

But if they don't raise the ceiling, lawmakers would raise the chance that those bondholders don't get paid over time.

Debt ceiling: What you need to know

That could theoretically happen if the Treasury a) is somehow not able to prioritize payments to bondholders; or b) has to pay out more to bondholders than it has coming in on any given day.

On some days Treasury brings in more money than it has to pay out. And on some days it doesn't. But on average, the United States comes up short by about $125 billion every month.

To cut that much spending or raise that much extra in tax revenue overnight would hobble the U.S. economy and very likely de-stabilize world markets.

A U.S. default would be catastrophic, influential bond investor Mohamed El-Erian said Sunday on CNN's "Fareed Zakaria GPS."

His advice to Congress? Raise the ceiling, even if you can't complete a debt-reduction deal in time.

"If ... you're going to kick the can down the road, kick the can rather than face something that could be catastrophic in terms of legal contracts being triggered," said El-Erian, CEO of PIMCO

Since last Friday, we had seen heavy buying by FIIs on front-line stocks, which in turn caused short-covering, especially at and around of 5400 levels.

Later on Monday, the Nifty opened with a lower bias on global cues, but once again got support at around 5400. Now, 5414 and 5400 will act as major support levels and the major resistance would be at 5600 and 5665 which can attain in the short term. On the option segment, the Nifty call option open interest has fallen in at-the-money and in-the-money call options which lead the put-call ratio to stabilise above 1.20 levels.

In previous weeks, the Nifty put-call ratio has fallen below 1.20 levels and even tested 0.47 levels, now the scenario has changed dramatically and the current ratio has lend support to bulls. But the major outlook still remains weak, because we are still far below the 200 DMA of 5752, and Dow Jones is also set to break the 200 DMA of 11776 in the short term. The rally which we are seeing is a bounce back and it can be short lived as the June expiry is nearing.

The major heavy weight stocks have participated in the recent bounceback, and the trend may continue for some more time even if there are rough patches of high inflation and high interest burden. The situation can be better capitalised by selling the Nifty and its call options in the July series at higher levels.

July short strangle is considered, and it can be created by selling 5700 Nifty call option and selling 5400 put option. Risk averse can exit from the position as the time values of both options have started to decay. Fresh short positions on Nifty futures can also be considered when the Nifty comes very close to 5665 levels with a strict a stoploss above 5690.

Long call options are advisable in TCS and Maruti; both these stocks are expected to move up due to low implied volatility of its options. Grasim, ACC and Bajaj Auto can witness profit-booking in the near term. Investors can create small short positions in these stocks in June futures segmen

The Federal Reserve is winding down its $600 billion bond buying stimulus that helped fuel an eight-month stock rally, and experts say stocks are ready to take back the reins.

They don't need or want any more stimulus, say strategists surveyed by CNNMoney.

Even though stocks have retreated about 7% since the start of May, most market strategists say the pullback is temporary, and are calling for the S&P 500 to rise more than 7% during the second half.

That means the S&P 500 would end 2011 with double-digit gains ... at a fresh 3-year high. All of that without any additional stimulus.

"The Fed should stop. They've done more than enough already," said Matt King, chief investment officer at Bell Investment Advisors. "Any further stimulus only increases the long-term risk of inflation, which we already view as high."

A stormy year for stocks

What's more, some went so far to say that the Fed's stimulus program, known as quantitative easing or QE2, was "a failure."

"It weakened the dollar and stuck the economy with higher food and energy prices," said Donald Selkin, chief market strategist at National Securities, adding that those factors are to blame for the recent pullback in consumer spending and slowdown in economic growth.

CNNMoney survey: Where the markets are headed

Rather than another round of monetary stimulus, experts say policymakers need to focus their goals on righting the nation's fiscal ship to keep the market and economy on track.

"The Fed should move to the sidelines until Congress acts to extend the debt ceiling and addresses a budget deficit package," said Marc Pado, chief investment strategist at Cantor Fitzgerald.

Without Fed intervention, Congress may also be more inclined to address tax policies that are keeping record amounts of corporate cash abroad, experts said.

If Congress were to enact some sort of repatriation tax holiday, it could bring some of that money back to the United States, which would spur business spending and lead to more job creation.

"The Fed needs to pass the baton to the next runner in this relay race and that is business spending," said Burt White, chief investment officer at LPL Financial. "It is time for businesses to spend and hire, which will move the baton later to the anchor runner, the consumer."