Quantitative Tightening QT
Quantitative tightening is a central bank shrinking its bond portfolio, mainly by letting bonds mature without reinvesting, draining cash from the system.
What it is
Quantitative tightening (QT) is the reverse of quantitative easing. Under QE, a central bank creates reserves to buy bonds and its balance sheet expands; under QT, it lets that balance sheet shrink. The usual method is passive runoff: when bonds the central bank owns reach maturity, the principal is repaid and simply not reinvested, so the holdings roll off over time. A central bank can also sell securities outright, though that is less common. Either way the bond portfolio shrinks and the central bank's liabilities contract — commonly bank reserves, though other liabilities such as the government's deposit account or overnight reverse repo balances can absorb part of the decline. A larger share of outstanding government debt is then held by private buyers.
Why it matters
QT is a second lever, distinct from the policy interest rate. The policy rate mostly anchors very short-term borrowing costs; the balance sheet acts on longer maturities and on how much cash sits in the banking system. Because bond prices and yields move inversely, less central-bank demand for bonds means, in isolation, lower prices and higher yields — which feed into mortgage rates, corporate borrowing costs, and the discount rate applied to future company earnings. QT is also why headlines about "bank reserves" appear: drain enough of them and short-term funding markets can become strained. QT describes policy in motion; it is not a prediction of any market outcome.
How it's calculated
There is no single published "QT number." It is measured as the change in the central bank's securities holdings — not total assets, which can rise on emergency lending even while runoff continues. The Federal Reserve publishes its balance sheet weekly in the H.4.1 release ("Factors Affecting Reserve Balances"), showing Treasury and agency mortgage-backed securities holdings; the Bank of Canada publishes a weekly statement of assets and liabilities. The FOMC also announces monthly redemption caps — a maximum of maturing principal allowed to roll off each month, with anything above the cap reinvested. So the intended pace is announced; the realized pace is whatever the balance sheet shows.