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2023 Mid-Year Market Outlook

Financial Decoder

CHAPTER

Holding Is Tightening: Why It Matters to Bond Investors

The Fed is still allowing its balance sheet to decline, this process of they call quantitative tightening. When the bonds it holds mature, they aren't replaced and that shrinks the balance sheet. The second reason that holding is tightening is that real interest rates are rising. So as long as inflation is falling and nominal rates are steady, that means real rates are continuing to move up.

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