After heading into the uncharted territory of quantitative easing, the world’s central banks are starting to plan their course through the uncharted waters of quantitative tightening.

How the Federal Reserve, European Central Bank and -- eventually -- the Bank of Japan handle the transition could make the difference between a global rerun of the 2013 "taper tantrum," or the near undetectable market response to China’s run-down of U.S. Treasuries in recent years. Combined, the balance sheets of the three now total about $13 trillion, equating to greater than either China’s or the euro region’s economy.

Former Fed Chair Ben S. Bernanke -- who triggered the 2013 sell-off in risk assets with his quip on tapering asset purchases -- has argued for a pre-set strategy to shrink the balance sheet. Current Vice Chairman Stanley Fischer says he doesn’t see a replay of the 2013 tantrum, but the best laid plans of central bankers would soon go awry if markets can’t digest the great unwinding.

"You know what they say about mountaineering right? The descent is always more dangerous than the ascent," said Stephen Jen, London-based chief executive of hedge fund Eurizon SLJ Capital Ltd. "Shrinking the balance sheet will be the descent."

Economists and investors are stepping up analysis of the implications of balance-sheet contraction after minutes of the Federal Open Market Committee meeting last month showed officials favor kicking off the process as soon as this year. 

David Fuller's view

We could speculate and fret about this endlessly but I wouldn’t worry about it until US 10-Yr Treasury Yields sustain a clear break above 3%.