The largest asset manager in the world is worried about the Fed’s $7.3-trillion balance sheet. This is why.

BlackRock said in a Friday client note that changes to how the Federal Reserve handles one of the most important treasure troves of assets in the world pose “underappreciated” risks to the financial markets.

Early in May, the Federal Reserve said it would change how quickly it tries to reduce its $7.3-trillion balance sheet starting June 1. This change was “barely a side note” in the financial markets, according to Tom Becker, portfolio manager at BlackRock’s Global Tactical Asset Allocation team.

BlackRock BLK, +0.56%, on the other hand, saw it as a big deal. In the first quarter, it had a record $10.5 trillion in assets, making it even more of the world’s biggest asset manager.

The Federal Reserve said that as part of its “quantitative tightening” program, it will soon only let up to $25 billion in maturing Treasury securities roll off its balance sheet each month. This is down from $60 billion the previous month.

Any money from mortgage-backed securities (MBS) that matures above the $35 billion monthly limit for those assets would also be put back into Treasurys.

Becker, on the other hand, says that what’s on the Fed’s balance sheet is more important than its “size.” “Ten-year [Treasury] BX:TMUBMUSD10Y yields are probably being pushed down by over 2% and could be pushed down by as much as 4%,” he wrote. The 10-year benchmark rate was close to 4.42% on Friday. It had been as high as 4.7% not long ago.

If the “economy continues to expand strong and inflation remains sticky, we see a growing chance that future tightening discussions could involve altering the composition of balance-sheet holdings,” Becker added.

Importantly, his team views an “active” shrinking approach or “recasting” of the Fed’s balance sheet as “an underappreciated risk,” particularly after November’s U.S. election.

Becker pointed to a recent speech by Fed Governor Chris Waller that outlined his preference for shifting toward shorter-dated securities holdings and no MBS exposure.

“Transitioning to a shorter-duration balance sheet would likely drive up long-dated government-bond yields and be negative” for the U.S. dollar DXY, Becker wrote, noting that BlackRock’s Tactical Opportunities Fund PBAIX has those two sets of exposures.

To that end, the fund increased its short position on the U.S. dollar this year, but was long U.S. stocks and short long-duration government bonds, as of April 30.

“There are voices on the committee now advocating for a substantial reassessment of the balance sheet,” Becker said.

The Dow Jones Industrial Average DJIA closed above the 40,000-point mark for the first time ever Friday, sealing a 1.2% weekly advance, according to FactSet data. The S&P 500 SPX booked a 1.5% weekly rise, while the Nasdaq Composite COMP gained 2.1% on the week.