Shrinking Deficits Cushion Fed’s Retreat From Markets

A shrinking federal budget deficit is providing a major boost to investors, enabling the Treasury Department to cut longer-term debt issuance despite the Federal Reserve’s recent move to buy fewer bonds.

The prospect of the Fed shrinking its bondholdings, a policy known as quantitative tightening, or QT, has long been a nagging concern for investors. While it is early to conclude that the Fed maneuver won’t hit markets, the strong rally in stocks and bonds in recent months suggests that the relationships are more complicated than many analysts had assumed.