Treasury Fall Poses Long-Term Dilemma for Fed Balance Sheet.

"This week’s jump in Treasury yields hints at a day in the distant future when the Federal Reserve could confront real difficulties managing an enlarged balance sheet.

At issue is the eventual cost of the Fed’s vast holdings of Treasury securities, which are growing rapidly as it carries out a “quantitative easing” program to add $600 billion in Treasurys to its books and reinvest up to $300 billion of maturing mortgages. While the institution faces no near-term threats to its healthy profitability, if it grows its portfolio while yields on Treasurys keep marching higher — and, by extension, when their prices are going lower — its profits won’t be as juicy..."

at http://blogs.wsj.com/economics/2010/12/10/treasury-fall-poses-long-term-dilemma-for-fed-balance-sheet/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29