Fed Portfolio Shift Could Hand Treasury $2 Trillion, BofA Says

A possible shift in the composition of the Federal Reserve’s portfolio of Treasury holdings could result in the central bank buying nearly $2 trillion of bills over the next two years, enough to absorb nearly all of the Treasury’s issuance during that period, according to Bank of America Corp.

Strategists Mark Cabana and Katie Craig expect the Fed to adjust its portfolio to better match assets and liabilities in a move that will protect against interest-rate risk and negative equity while bringing down the duration of their liabilities. It would also end up being a much-needed windfall for the Treasury Department, which has been issuing billions of dollars in short-term debt to fund a growing deficit and replenish its cash balance following last month’s increase of the debt ceiling.