The U.S. Federal Reserve reduced its bond holdings for the year and began to narrow down its 2.3 trillion euro bond-buying stimulus next year amid a better economic situation. This could lead to an oversupply in sovereign debt issuance in major economic for the next four years. At the same time, this would increase borrowing cost with a larger source to buy from. This could translate to the improvement of net sovereign bond issuance next year from the United States, Japan, and the eurozone following purchases from the central bank for the first time in 3 years. Thinking back, the net supply has been performing poorly over the past few years that aids bond yields. Analysts see the potential in even the slightest reduction of the volume of bond yields implying a bigger supply for the market that is not accounted in pricing.
