Will The End of QE Lead to a Bond Sell-Off?

Answer: it depends on the growth/inflation outlook, less so on the Fed’s balance sheet changes. Per UBS:

« With the recent FOMC members’ talk about cessation of reinvestments, market participants have become quite concerned about the impact on US yields. Here we provide a framework to analyse and to quantify the impact of a potential balance sheet unwind on US long-term yields. We estimate that unwinding the balance sheet in Q3 2018 would increase bond (term) premia by c. 40bps. The market is already pricing this, but an earlier unwind could lead to a steeper curve and 25-30bp yield shock. »

Source: UBS