TGA: Why One Trillion in Liquidity Could Trigger the Post-Shutdown Rally

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Hello traders,

Over the past few days, markets have shown clear signs of funding stress — liquidity is tightening, forcing market makers to pull cash from the riskiest assets such as meme stocks, small-caps, and crypto. This move isn’t purely sentiment-driven but reflects a mechanical liquidity drain caused by stress in short-term funding markets and the freeze of TGA (Treasury General Account)¹ flows amid the ongoing government shutdown.

When the Treasury can’t spend or issue freely, fewer dollars circulate through the banking system, repo rates rise, and conditions tighten further. Market makers then reduce leverage, unwind risk positions, and wait for funding costs to stabilize.

However, on Friday the market staged a strong reversal, driven by optimism that the shutdown could soon end and liquidity might start flowing back. If the Treasury resumes spending and the TGA injects cash into the system, risk assets could rebound sharply — but until that happens, volatility will remain elevated.

As of now, the TGA has surged back toward $940 billion, one of the highest levels since early 2023. This means a large amount of cash is currently parked at the Fed, not circulating in the economy.

At the same time, even the Federal Reserve has acknowledged the strain: New York Fed President John Williams said the Fed may soon need to expand its balance sheet to meet liquidity needs — a clear sign that policymakers are monitoring the situation closely. (Source: Reuters)

Finally, it’s worth noting that the volatility curve remains in contango, meaning