“The market will have to absorb a significantly greater amount of supply as the Fed steps away,” said Michael Pond, a survey participant and an interest-rate strategist in New York at Barclays Plc, one of the primary dealers required to bid on Treasury auctions. “We do expect yields to go higher. Bearishness across all sovereign issuers may be warranted.”
Private participation in the treasury market is already very low. If the Fed steps away, the foreign official sector will have to fill the void. Unfortunately, official buyers such as China have expressed resevations about continuing to do so. The more foreign central banks cut marginal purchases and yields rise, the more pressure on the Fed to continue to buy. It's a mess.
Source: bloomberg.com
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