Goldman Sees ‘Quantitative Tightening’ Fueling Treasury Volatility
- Unwind may also fuel rise in short-term rates, moreso in 2023
- Citigroup has said Fed QT to fuel arbitrage opportunities
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A reduction in the size of the Federal Reserve’s balance sheet could hurt liquidity within the Treasury market, boost volatility and affect how different parts of the U.S. rates market are valued relative to one another, according to Goldman Sachs Group Inc.
The call by Goldman strategists including Praveen Korapaty follows remarks from Citigroup Inc. strategists, who said in a report published late last week that the process of so-called quantitative tightening -- which is widely expected to follow on the heels of the central bank’s first interest rate increases later this year -- could spark a return of arbitrage opportunities for traders within U.S. interest-rate markets.