HSBC: Fed's Reduction in Holdings Will Make U.S. Treasuries More Dependent on Price-Sensitive Buyers

HSBC strategists Dhiraj Narula and economist Ryan Wang stated in a report that if the Federal Reserve reduces its holdings of U.S. Treasuries, the U.S. Treasury market may become more reliant on buyers who are more sensitive to price. They wrote: 'A reduction in the Fed's holdings will still impact the U.S. Treasury market. If the growth of the System Open Market Account (SOMA) holdings does not keep pace with the growth of U.S. Treasury issuance—whether due to passive or relatively quantitative tightening, or merely moderate growth in holdings—ultimately, a larger proportion of government financing needs will have to be absorbed by price-sensitive investors.'