As far as bond buyers go, the Federal Reserve is prettylaid-back.

Even as the central bank amassed trillions of dollars of debt toprop up the economy following the financial crisis, it didn't hedgeits holdings or worry about gains and losses that might keepordinary investors up at night. This extreme buy-and-hold stancehas had an incredible calming effect on the bond market. Volatilityhas plummeted to lows rarely seen in recent memory.

But all that is now poised to change. With interest rates on therise, analysts say the Fed could start shrinking its unprecedented$1.75 trillion position in mortgage-backed securities by year-end.That's likely to leave more in the hands in private investors andresult in increased hedging activity, a practice that hashistorically exacerbated swings in the Treasury market.