Bank of America strategists note that while Federal Reserve Chair nominee Kevin Warsh has called for a new agreement with the Treasury Department, the move is unlikely to materially affect bond prices given the already close collaboration between the two institutions. Warsh proposed revisiting the 1951 Treasury-Fed Accord, which had significantly restricted the Fed's involvement in the bond market. Over the past decade, sustained asset purchases have expanded the Fed's balance sheet to $6.6 trillion.

Strategists including Mark Cabana and Katie Craig stated that the proposal is vaguely defined and largely reflects current operations. In a Thursday report, they suggested that meaningful market impact would more likely stem from the Treasury reducing long-term bond issuance or the Fed shifting to yield curve control—though the latter is considered unlikely. The strategists wrote, "Other potential agreement changes are likely to have limited effects. We believe a new 'accord' would have minimal impact on rates markets."

The original 1951 accord ended wartime interest rate controls and reinforced central bank independence. BofA strategists indicated that current discussions focus on more technical issues, such as the Fed's reinvestment of maturing bonds and portfolio management. More aggressive measures—such as formally limiting bond purchase programs or setting long-term yield caps—are unlikely to be included in any new agreement.

Bank of America believes markets have largely priced in most anticipated adjustments: • The Fed will allow mortgage-backed securities to run off naturally, with government-controlled entities Fannie Mae and Freddie Mac absorbing the supply. • The Fed will purchase Treasury bills via reserve management operations, while the Treasury issues such bills to refinance maturing debt. • The weighted average maturity of the Fed’s balance sheet holdings may shorten—a process that could accelerate as it rolls over longer-term bonds.

The market impact of these changes will depend on adjustments to the Treasury's issuance calendar. The strategists concluded that unless an agreement goes beyond these expected measures, "our conclusion is that a new accord would likely have limited implications for rates."