End of US shutdown could turn liquidity headwinds into tailwinds for risk assets

The end of the U.S. federal government shutdown and the resumption of government spending will increase market liquidity and benefit risk assets, according to an analysis by Negentropic, the X account of Glassnode co-founders Jan Happel and Yann Allemann. They explained that the shutdown has caused the Treasury General Account (TGA) to accumulate funds above its target, creating a liquidity drain that has hurt risk assets in the short term. However, this situation is expected to reverse quickly once spending resumes, releasing funds from the TGA. Negentropic added that factors such as the end of quantitative tightening in December, potential interest rate cuts, and an expansion of the Federal Reserve's balance sheet will further boost liquidity, turning headwinds into tailwinds and leading to a rebound for risk assets.