Macro
Quantitative Tightening
Quantitative tightening removes the reserves that were created during easing. Rather than reinvesting the proceeds when bonds on its balance sheet mature, the central bank lets them roll off, which withdraws cash from the banking system.
As liquidity leaves, borrowing costs tend to rise and investors become more selective about risk. QT often coincides with periods of tighter financial conditions and can pressure the most speculative corners of the market first.
Because QT works quietly in the background, many investors underestimate it. Following the pace of balance-sheet runoff alongside interest-rate policy gives a fuller picture of how much monetary support is actually being pulled away.
Example
After 2022, the Fed allowed roughly $95 billion of bonds to roll off its balance sheet each month, steadily draining liquidity through QT.
Quantitative Tightening — FAQ
What is Quantitative Tightening?
Quantitative tightening (QT) is the reverse of quantitative easing: a central bank shrinks its balance sheet by letting bonds mature or selling them, draining liquidity from the financial system.
Can you give an example of Quantitative Tightening?
After 2022, the Fed allowed roughly $95 billion of bonds to roll off its balance sheet each month, steadily draining liquidity through QT.
Understanding creates conviction.
Yield Theory turns concepts like this into a monthly read on where capital is heading — and what to do about it. Founding price $24.99/mo.
$24.99/mo · cancel anytime · researched by humans