Here’s a neat little chart from the St. Louis Federal Reserve Bank. It shows all maturities of U.S. debt held by the Fed. Since the middle of 2009, the Fed has bought something like $1.2 trillion in treasury debt. This is one way the Fed holds down interest rates – with the Fed buying, true demand for treasuries is masked or distorted. This false demand for treasuries has lifted bond prices and kept rates artificially low. Lower rates also encourage more borrowing, which we’ve done with impunity over the last four years.
At some point, the Fed will want to unload all this debt. When and how they accomplish this will certainly be interesting.