THE FEDERAL RESERVE, the European Central Bank (ECB) and the Bank of England have all engaged in some form of quantitative tightening (QT). This involves central banks either not reinvesting maturing government debt or, in the Bank of England’s case, selling bonds to shrink their balance-sheets. Partly as a result of central banks’ relative absence from government-bond markets as they implement QT, yields—which move inversely to prices—have been rising.
QT is the reversal of quantitative easing (QE), which is the expansion of central-bank balance-sheets to stimulate the economy, done by purchasing government debt to bring down long-term interest rates. Central banks adopted QE when policy rates hit the floor and could not be lowered further during the global financial crisis and, a decade later, the covid-19 pandemic.