Fed Faces ‘Narrow and Difficult’ Path as It Unwinds Balance Sheet, Barclays Says

The Marriner S. Eccles Federal Reserve Board Building in Washington, DC.

Mounting Treasury-bill supply is creating a “narrow and difficult” path for the Federal Reserve to keep unwinding its massive balance sheet and avoid roiling funding markets, according to Barclays Plc.

The key question is where the money will come from to absorb the hundreds of billions of dollars of bills the Treasury is selling in the wake of the debt-ceiling resolution in June. Along with Fed interest-rate hikes, that burst of issuance is driving up bill yields and luring cash from across the financial system.