An end to quantitative tightening could support bonds, though timing is tricky

A potential ending to the Federal Reserve’s balance sheet reduction measures this year bolsters the case for Treasuries to extend their 2023 rally, investors said, though many believe factors such as fiscal concerns could counterbalance gains. Minutes from the Fed’s Dec. 12-13 policy meeting, released earlier this week, showed some officials are already discussing what it would take to end the shrinkage of the central bank’s cash and bond holdings. That process, known as quantitative tightening, has seen the Fed’s balance sheet contract by nearly $100 billion per month as it allows Treasury and mortgage bonds it owns to mature and not be replaced.