The composite liquidity indicator had a rare down week last week. This breather followed a large uptick in mid February and will be followed by another big surge in mid March. February was a period in which liquidity was as “tight” (using the term loosely) as it will be for a while, thanks to peak Treasury supply in February and to the ECB’s LTRO paydown on March 1. Those one time factors will not be repeated, and the Fed’s money pumping will continue to add funds to the accounts of the Primary Dealers, through the markets and into the financial system where some will get recycled into the market and most will lie dormant as a long term threat to financial stability.
Meanwhile the return of small investors to the market has been vastly overstated, but the fact that they are no longer liquidating their mutual funds means that those funds no longer need to be sellers on balance. Removing that pressure from the market in conjunction with the Fed’s ongoing injection of $115 billion a month into Primary Dealer accounts, and you have a recipe for a potential meltup over the intermediate term. This report covers the data that encompasses these forces.
Table of Contents
Macroliquidity Component Indicators
Fed Cash to Primary Dealers
Foreign central bank holdings
Bank Treasury purchases
Bank Trading Accounts
Bank reserve deposits
Treasury Auctions, Federal Revenues and Supply Impact, and Treasury Yields
Open Market Operations (OMO) and Monetary Policy Actions
Other Policy Tools and Total Fed Credit
Other Fed Balance Sheet Items – Liabilities
Bank Loans Outstanding
Foreign Central Banks
Fannie and Freddie
Money Supply and Fund Flows
Bank Holdings of Treasuries
Bank Capital Trend
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