The era of hidden liquidity is ending

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The Fed is quietly walking a knife’s edge and everyone will feel it soon. Quantitative tightening emptied the ON RRP cushion, leaving banks exposed the same way they were in 2019, and that means every Treasury move now hits reserves directly. Marginal dollars will bounce between TGA and reserves with almost no buffer, creating shocks that can whip markets in hours. This sensitivity looks scary, but it also reveals opportunity: traders who understand the flow between TGA, bill issuance, and reserve balances can predict the spikes before the crowd even notices. Each quarter‑end or tax‑driven swing becomes a chance to capture outsized moves, and the very scarcity that terrifies most could become a signal for disciplined strategy. If the Fed continues carefully, this regime could teach the market exactly how to price liquidity risk in a world of shrinking buffers.

https://twitter.com/silenttrader84/status/1971169223251771583

With RRP drained, QT cuts straight into reserves, making every TGA swing a direct shock to liquidity.
byu/MonetaryCommentary inInfographics

Meanwhile:

h/t MonetaryCommentary