- As expected, the Fed has announced balance sheet tapering.
- Rather than being actively sold, assets will “run-off.”
- This may push 10-year Treasury yields higher over time.
- We estimate that the impact could be 20 to 40 basis points.
- However, long-term yields should remain range-bound.
The Federal Reserve has announced it will begin reducing its balance sheet in October. This unwind of the central bank’s massive quantitative easing programs marks a major policy change that could impact interest rates and markets more broadly.