There is still a balance sheet backstop for column-restive bonds: Dolan, Mike LONDON (Reuters): The balance sheet is always there.

There are concerns that these disruptions could threaten larger markets and perhaps economies as battered bond markets are rapidly repricing government borrowing costs to levels not seen in decades.

The primary causes of the bond frenzy have been widely discussed, including market anxiety over sticky U.S. inflation, interest rates set by the Federal Reserve, and the soaring debt as a new U.S. presidential administration assumes office.

However, nervous investors appear to be losing sight of the fact that central banks still possess a very potent weapon in the form of their balance sheets.

The goal of central banks is to maintain financial stability. They can mobilize their potentially unlimited balance sheets at any time if they believe that markets are unreasonably restive.

Policymakers can always pull back if necessary, even though during the past two years, a number of significant central banks have rolled debt off their books and sold it outright in certain situations.

This has already occurred to us. In late 2022, the Bank of England effectively stabilized the gilt market by temporarily reversing its balance sheet contraction. Additionally, the Fed followed suit during the March 2023 regional bank wobble.

Furthermore, it appears that the Fed and other central banks will stop their "quantitative tightening" (QT), or balance sheet runoffs, early this year. Before the program concludes, analysts predict that an additional half a trillion dollars will be spent in the United States.

According to a new New York Fed monitoring tool, this outflow has not yet resulted in a shortfall in U.S. bank reserves or disrupted the liquidity of the broader money market.