Bank of America: Fed portfolio adjustment could bring $2 trillion to Treasury

A potential rebalancing of the Fed's Treasury holdings could lead the central bank to buy nearly $2 trillion of treasury securities over the next two years, making it enough to absorb almost all of Treasury's issuance over that period, according to Bank of America. Strategists Mark Cabana and Katie Craig expect the Fed to adjust its portfolio to better match assets and liabilities, a move that would protect against interest rate risk and negative equity while reducing the duration of liabilities. It would also ultimately deliver a much-needed benefit to the Treasury, which has issued a large amount of short-term bonds to cover widening deficits and replenish cash balances since raising the debt ceiling last month.