Bank of America: Fed's Portfolio Adjustment Could Bring $2 Trillion to the Treasury

According to a report by Jinse Finance, Bank of America stated that a potential adjustment in the Federal Reserve’s U.S. Treasury holdings structure could lead the central bank to purchase nearly $2 trillion in Treasury bills over the next two years, making it sufficient to absorb almost the entire issuance by the Treasury during that period. Strategists Mark Cabana and Katie Craig expect the Fed to adjust its portfolio to better match assets and liabilities, a move that would guard against interest rate risk and negative equity, while also shortening the duration of its liabilities. Ultimately, this would also provide the Treasury with much-needed revenue. Since raising the debt ceiling last month, the Treasury has issued a large volume of short-term bonds to cover the widening deficit and replenish its cash balance.