Three weeks ago we mentioned how Fed assets were finally declining on a quarterly basis. Since then we have had a few more data points released and the trend is still downward. Compared to three months ago, the Fed's balance sheet has shrunk by over $32 billion. We are, however, beginning to reach the contractionary limit during the QE period. The most the Fed's balance sheet has contracted over a three month period was $81.8 billion in May 2012. Whether the Fed will accept a further contraction in its balance sheet seems to have important implications for the bond market, especially the long-end of the curve. 30-year treasury yields have pretty much moved in lockstep with changes in the Fed's balance sheet as has the 10-year yield to a slightly lesser degree. If the Fed's balance sheet continues to grind lower a 2% 30-year yield in the US doesn't seem like an outlandish possibility.