--- title: "The market is worried about Waller restarting QT? But the real tool may be SOMA" description: "Citigroup believes that it will be difficult for Waller to restart a comprehensive tightening, and what is truly coming is a technical \"slimming down\"—through adjustments to the SOMA investment portfo" type: "news" locale: "en" url: "https://longbridge.com/en/news/274486686.md" published_at: "2026-02-02T08:48:46.000Z" --- # The market is worried about Waller restarting QT? But the real tool may be SOMA > Citigroup believes that it will be difficult for Waller to restart a comprehensive tightening, and what is truly coming is a technical "slimming down"—through adjustments to the SOMA investment portfolio duration, which could release $420 billion in reinvestment space in 2026-2027. For investors, this means that the curve will further steepen, and the 3 to 5-year period may become the best "safe haven." Trump nominated Kevin Warsh to be the next Chairman of the Federal Reserve, raising concerns in the market about balance sheet contraction. Although Warsh is known for his hawkish stance on the balance sheet, Citigroup believes that the likelihood of fully restarting QT (Quantitative Tightening) is low. Citigroup analysts argue that what really deserves attention is the adjustment of the weighted average maturity (WAM) of the Federal Reserve's SOMA portfolio—by converting maturing securities into short-term Treasury bonds, the Federal Reserve can achieve a "slimming down" of its balance sheet without causing market turmoil. This strategy could release about $420 billion of reinvestment space between the second half of 2026 and 2027. For investors, this means the curve will steepen further, and the 3 to 5-year period may become the best "safe haven." ## Warsh's Hawkish Stance: The Possibility of "Cutting" the Balance Sheet Kevin Warsh, as a former Federal Reserve governor, has always held a tough stance on balance sheet issues. In an article in The Wall Street Journal last November, he stated that the Federal Reserve's balance sheet is "bloated" and argued that it "can be significantly reduced. These generous resources can be redeployed in the form of lower interest rates." The market's immediate reaction was as Citigroup expected—a steepening bull market (front end down, long end under pressure), with the 30-year swap spread further turning negative. At the same time, the market began to price in slight rate hike expectations for 2027/2028, although Citigroup believes Warsh's historical focus on inflation risks is less relevant in the current environment. ## SOMA Adjustment: A More Realistic Path than QT Citigroup assesses that fully restarting QT will face significant resistance after last year's volatility in the repurchase market. A more likely operation is: > **Reduction of Reserve Management Purchases (RMPs): from the current $40 billion per month down to about $10 billion (Citigroup expects it to naturally decline to $20 billion after mid-April). However, this has limited macro impact.** > > **Adjustment of the WAM of the SOMA portfolio:** Converting maturing U.S. Treasury securities into short-term Treasury bonds. Based on a monthly cap of $30 billion, approximately $140 billion could be achieved in the second half of 2026, and about $275 billion in 2027. This approach will gain broad support within the Federal Reserve. **Citigroup pointed out in its research report that the Federal Reserve may increase the proportion of short-term Treasury bonds in the SOMA holdings from the current level to 40%. This adjustment is technically easier to implement and will not cause a severe shock to reserve levels like a full restart of QT would.** However, analysts acknowledge that while the possibility of fully restarting QT is not the baseline scenario, it cannot be completely ruled out. This would require the Federal Reserve to first improve the clearing mechanism of the Standing Repo Facility (SRP) to dynamically replenish reserves. This would significantly reduce the WAM of the SOMA and increase the Treasury's financing needs. ## Concerns About Term Premiums May Be Exaggerated Citigroup believes that from the Treasury's perspective, any rollover of SOMA securities will increase its financing needs—either by issuing more short-term Treasury bonds or by increasing the size of the securities. However, if the Treasury continues to favor short-term bond issuance, the yield curve may not steepen significantly **Analysts warn that the real risk lies in another "buyer strike" for U.S. Treasuries, which could be triggered by market panic over QT and/or an increase in the scale of future bond auctions (perhaps unreasonably).** Currently, there are concerns in the market that foreign demand may plummet, pushing up term premiums. However, Citigroup data shows that the foreign subscription ratio for last year's 10-year Treasury auction actually strengthened. Typically, the strength of foreign demand for newly issued auctions depends on the performance of previous reopened auctions. The foreign subscription ratio for recently reopened auctions has been unusually high compared to newly issued auctions—this abnormal pattern suggests that foreign demand may remain strong for the next auction (tentatively scheduled for February 11) ### Related Stocks - [C.US - Citigroup](https://longbridge.com/en/quote/C.US.md) - [XLF.US - Financial Select Sector SPDR Fund](https://longbridge.com/en/quote/XLF.US.md) - [VFH.US - VG Financial](https://longbridge.com/en/quote/VFH.US.md) - [FNCL.US - Fidelity MSCI Financials Index](https://longbridge.com/en/quote/FNCL.US.md) - [IAI.US - ISHRS Us Brokers & Sec Exchg](https://longbridge.com/en/quote/IAI.US.md) - [FINX.US - Global X Fintech](https://longbridge.com/en/quote/FINX.US.md) ## Related News & Research | Title | Description | URL | |-------|-------------|-----| | 庫倫佛寺銀行公司 $CFR 的股票頭寸被 Assetmark Inc. 提升 | Assetmark Inc. 在第三季度大幅增加了對庫倫佛寺銀行的持股，增幅達到 23,543.6%，目前持有 9,221 股，價值 1,169,000 美元。其他機構投資者也提高了他們的持股。內部人士進行了股票出售，部分高管最近出售了股份 | [Link](https://longbridge.com/en/news/276508313.md) | | 安大略教師養老金計劃委員會出售了美國銀行公司$BAC 的股票 | 安大略教師退休金計劃委員會在第三季度將其在美國銀行（NYSE:BAC）的持股減少了 24.9%，目前持有 3,082,510 股，價值 1.59 億美元。這使得美國銀行成為他們投資組合中第七大持股。其他投資者也調整了他們的持倉，其中一些增加 | [Link](https://longbridge.com/en/news/276339405.md) | | 瑞銀集團 - 穩定化後公告 RBI PerpNC6.9 AT1 | 瑞士銀行（UBS AG）已發佈關於 Raiffeisen Bank International AG 發行的 6.9% 永久性無到期日 AT1 證券（總額為 6.5 億歐元）的後穩定通知。通知指出，瑞士銀行歐洲子公司（UBS Europe | [Link](https://longbridge.com/en/news/276321485.md) | | 關鍵事實：富國銀行為愛迪生公司提供了 15 億美元貸款；聘請了 Weikes Slattery | 在 2 月 20 日，富國銀行與南加州愛迪生簽署了一項定期貸款協議，提供高達 15 億美元的貸款，具體內容在最近的 SEC 文件中披露。富國銀行聘請了來自摩根大通的 Weikes Slattery Group，管理着 31 億美元的資產，以 | [Link](https://longbridge.com/en/news/276519585.md) | | 摩根大通出售了 337,799 股 Monday.com 有限公司的股票 $MNDY | 摩根大通（JPMorgan Chase & Co.）在第三季度減少了對 monday.com Ltd.（NASDAQ:MNDY）18.4% 的持股，出售了 337,799 股，剩餘持有 1,495,201 股，估值約為 2.896 億美元。 | [Link](https://longbridge.com/en/news/276439258.md) | --- > **Disclaimer**: This article is for reference only and does not constitute any investment advice.