A $1 Trillion Pain Trade in Treasuries Divides Top Bond Dealers

Bloomberg/Liz McCormick & Alex Harris/05-14-17

To appreciate just how important the Federal Reserve has been to the U.S. Treasury, consider this simple fact: It alone financed roughly 40 percent of America’s budget deficit last year.

So as Fed officials talk up the possibility of unwinding the central bank’s crisis-era bond holdings later this year, figuring out what will happen when the U.S. loses its biggest source of funding has become a pressing concern.

PG View: This is why I think talk of balance sheet normalization is nothing more than hawkish jawboning, particularly in light of the fact that foreign buyers of Treasuries are pulling back.

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