The Federal Reserve's fast-paced rate hikes and initial reductions of its balance sheet have resulted in liquidity drying up across markets, amplifying volatility and uncertainty.

As Visual Capitalist's Advisor Channel shows in this 'Markets in a Minute' from New York Life Investments explains how quantitative tightening affects markets, and charts the rise in volatility spurred by the severe decline in S&P 500 futures book depth.

What is Quantitative Tightening (QT)?

Quantitative tightening (QT) is the infamous twin to quantitative easing (QE). For context, quantitative easing is the injection of liquidity into bond markets by the Federal Reserve buying Treasuries and mortgage-backed securities which are added onto the Fed's balance sheet.

As a result, during periods of quantitative easing, Treasuries and certain mortgage-backed securities have a large-scale buyer providing buy-side liquidity, reducing the impact of sellers in the market. This supports bond prices, and prevents bond yields from rising too quickly.