“Several companies have recently asked us for an analysis of the Federal Reserve tapering its quantitative easing programs. One factor that is not widely analyzed is the Fed’s own balance sheet, which could be a constraint on how far and how fast the Fed permits interest rates to rise in the US. We calculate that a 143bp parallel rise in the yield curve would cause a drop in the market value of the Fed’s assets that exceeds the Fed’s own equity capital (as of May 15). The Fed balance sheet’s capacity to absorb higher interest rates has deterioriated quickly, as the 143bp capacity is down from 185bp as of last October.”

http://consultingbyrpm.com/blog/2013/05/caitlin-long-vulnerability-of-feds-balance-sheet.html

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