Fixed-income markets are overestimating the impact of potential changes to the Federal Reserve's balance-sheet policy, according to Canadian Imperial Bank of Commerce. The bank's analysts argue that any adjustments to the Fed's balance sheet will likely be slow and limited in scope.

Markets have been speculating about when and how aggressively the central bank might reduce its balance sheet holdings, which ballooned during the pandemic-era stimulus programs. CIBC's assessment suggests that investors may be pricing in more dramatic changes than are likely to materialize in the near term.

The Fed has been gradually shrinking its balance sheet through quantitative tightening, but the pace and extent of future reductions remain uncertain. CIBC's analysis indicates that market expectations may be running ahead of the Fed's actual policy trajectory, potentially creating opportunities for investors who adjust their positioning accordingly.