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Fed’s Balance sheet reduction: how will it impact the US Treasury market?

 

The essential

FOMC members plan to reduce the Fed’s balance sheet this year and gave recently some precisions about how they will do. We tackle here the impact on Treasury yields of the QE programs before focusing on the Fed’s strategy of balance sheet reduction and its possible impacts. Other technical factors have to be considered, like the holdings of non-resident investors.

Even if the reduction of the Fed’s balance sheet will take place very gradually, the amount of Treasury securities that non-Fed investors will be very large. The impact of this policy change will have on long-term yields will depend on other parameters, like the US fiscal policy but also the evolution of the FX policy of Chinese authorities, China being the most important Treasury holder. In the unlikely scenario of substantial stimulus measures, the amounts to absorb by the non-Fed US investors might be very large, what would have a strong impact on long-term yields.

CROSS ASSET (Download)

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July/August 2017

 

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Juillet/Août 2017

 

The Article

L'Article

DRUT Bastien , Fixed Income and FX Strategy
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Fed’s Balance sheet reduction: how will it impact the US Treasury market?
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