Once the Fed fully ramps its QT effort logic suggests that Treasury yields will climb higher as it is unlikely that a buyer(s) exist to offset the Fed’s Balance Sheet runoff. Thus, Treasury prices are likely to fall and yields will climb. Risk assets are likely to decline in value during this QT period.
The Fed reduced its Balance Sheet by $25.3 billion during the August 24th – August 31st period.
The Fed reduced its Balance Sheet by $48.5 billion during the August 3rd – August 31st period.
Beginning September the Fed is expected to reduce its Balance Sheet by $95 billion per month (see chart of the Fed’s assets below).
The 2-year Treasury yield climbed from 2.90% on August 1st 2022 to 3.45% on August 31st 2022 – a 19% increase for the month. Click HERE for Treasury yields.