BMO analysts Margaret Kerins and...>

US TSYS/RESEARCH: BMO analysts Margaret Kerins and Dan Belton "estimate that the

Fed Treasury runoff should pressure 10yr UST yields about 5 bp higher for every

$100 bn of rundown, all else equal."

- "During the rundown period, the Fed will still purchase about $664 bn of the

$1.5 trillion maturing," they said. "This estimate includes projections for

additional purchases and future maturities of these purchases."

- They add that "the current Fed did not provide guidance on the size of the

optimal balance sheet or the future term composition of the holdings once the

optimal balance sheet is achieved."

- "However, BMO Economics estimates that the Fed's balance sheet will shrink to

the optimal level at the beginning of 2022 when assets total about $2.8tn. At

this time, Treasury holdings will be about $1.5 trillion and will likely begin

to increase as the optimal balance sheet gradually grows and MBS runoff is

replaced. On average, we estimate that these net purchases of Treasuries will

total about $200bn per year beginning in 2022," they said.