The once-placid life of Treasury bills and bonds could get more chaotic for a while
life of a Treasury bill or bond. Typically once or twice a week, a batch of fresh Treasuries are born. Their first home is usually, briefly, an investment bank's dealing desk. Those dealers might hold on to a few for themselves, but generally they distribute the bulk to more permanent owners, like the bond portfolios of a mutual fund, a foreign government or a company or the Federal Reserve.
According to the policy statement released on May 4th, the Fed will reduce its balance-sheet not by actively making sales, but by letting bonds that have reached the end of their lives mature without buying a new bill or bond to replace them. By September, if all has gone to plan, the Fed’s portfolio will be shrinking by $95bn a month, split between $60bn of Treasuries and $35bn of mortgage-backed bonds. At that pace the Fed’s balance-sheet will shrivel by more than $1trn over the next year.
A combination of financial-crisis stimulus, fiscal deficits under President Trump and pandemic-era splurge have caused the Treasury market to grow nearly five-fold since 2007.
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