I am continually amused at the extent which a question comes up — let’s say it’s “what happens when the Fed reduces its balance sheet” — it’s answered, and then a few months later, the very same question comes up and everyone (including the people who answered it initially) forgets that we just spilled all kinds of digital ink addressing it.

I mean Jesus: how many times have we talked about the Fed shrinking its balance sheet in the past 12 months. I’d be willing to bet that the number of sell-side notes dedicated to this topic was easily in the hundreds — before March 2017.

Hell, it was just three months ago when we were all talking about balance sheet shrinkage in the context of Donald Trump’s comments about wanting a weaker dollar. Remember that in January? The debate was revived about whether letting assets roll off was preferable in terms of tightening policy in the current environment because it was assumed that going that route would have less of an effect on the dollar than outright FF hikes. That, according to the prevailing narrative, would help appease Trump by not giving the dollar another excuse to rally.

Well fast forward to end-March/early-April and everyone is acting like we didn’t just have this goddamn conversation. Suddenly “Fed balance sheet reduction” is something no one’s ever considered. As if the March Fed Minutes just came out of left field.

And no, this discussion didn’t just suddenly become more relevant because of the hyper focus on 10Y yields. I mean that’s what the whole discussion in January was about, right? “Let’s tighten using the balance sheet so we affect the long-end more than the short-end and if conventional wisdom turns out to be accurate then the result will be more FX-neutral, plus we’ll steepen the curve as an added bonus.”

Also, how many times have we asked “who’s going to buy when the Fed stops reinvesting proceeds?” And I don’t mean “we” as in HR. I mean “we” as in a community of people who talk about markets. The answer is: “well, someone else that’s not the FOMC.” This isn’t rocket science. The long and the short of it (no pun intended) is that suddenly the market is going to have to shoulder the burden of buying what the Treasury is selling at a time when, if we ever get around to fiscal stimulus, there’s probably going to be more supply. Surprise! Could that be a problem? Well, maybe. But likely not. Especially if the Japanese get off their asses and get back on the horse now that hedging costs are lower.