US Macro Updates

Key takeaway: With the March banking crisis almost out of memory now, focus has shifted from use of emergency liquidity facilities of the Fed to the flow of deposits from the banks / change in the level of reserves in the banking system and the level of the Treasury General Account. 

• The BTFP usage has not significantly changed in the past few weeks, but the level has been creeping up and now stands at approx. US$113bn. This is not surprising since the facility has attractive terms (i.e. ability to borrow 100% against the principal value of the bonds). With the recent rise in long term rates, it will be key to monitor further usage of the BTFP
• As the Fed undertook QT over the past year and post the debt ceiling resolution, market participants were worried if the deposits in the banking system would get drained rapidly. However, much to the Fed’s relief the drain of liquidity came primarily from the RRP and Bank Reserves remained steady. After a brief increase in recent months, RRP balances have fallen steeply once again. The RRP facility usage dropped below the US$1 Tn level. As of the latest release, the RRP balance stands at US$944 Bn on 15th Nov 2023. Bank reserves, on the other hand, held up well and in the recent few weeks have inched up to US$3.5 Tn (higher than the level a year ago). This has been a very important factor for liquidity in the markets.
• The TGA account now stands at about US$738 Bn. The recent surge in the TGA account can be attributed to the recent issuances of treasury bonds and notes and a slowdown in spending on the back of the political imbroglio in Washington DC. But with the government shutdown averted, we can expect the TGA to come down a bit.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

19th Oct 2023

Key takeaway: With the March banking crisis almost out of memory now, focus has shifted from use of emergency liquidity facilities of the Fed to the flow of deposits from the banks / change in the level of reserves in the banking system and the level of the Treasury General Account. 

• The BTFP usage has not significantly changed in the past few weeks, but the level still remains fairly elevated at US$109bn. This is not surprising since the facility has attractive terms (i.e. ability to borrow 100% against the principal value of the bonds). With long term rates once again on the rise, it will be key to monitor further usage of the BTFP
• As the Fed undertook QT over the past year and post the debt ceiling resolution, market participants were worried if the deposits in the banking system would get drained rapidly. However, much to the Fed’s relief the drain of liquidity came primarily from the RRP and Bank Reserves remained steady. After a brief increase over the past few months, RRP balances have fallen steeply once again. The RRP facility usage dropped to approx. US$1.15 Tn by Oct 18th. Bank reserves, on the other hand, held up well and remained steady at ~US$3.25 Tn – almost the same level as a year ago. This has been a very important factor for liquidity in the markets.
• The TGA account now stands at about US$840 Bn. The recent surge in the TGA account can be attributed to the recent issuances of treasury bonds and notes and a slowdown in spending on the back of the political imbroglio in Washington DC.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

21st Sep 2023

Key takeaway: With the March banking crisis almost out of memory now, focus has shifted from use of emergency liquidity facilities of the Fed to the flow of deposits from the banks / change in the level of reserves in the banking system and the level of the Treasury General Account. 

• The BTFP usage has not significantly changed in the past few weeks, but the level still remains fairly elevated at US$107bn. This is not surprising since the facility has attractive terms (i.e. ability to borrow 100% against the principal value of the bonds). With long term rates once again on the rise, it will be key to monitor further usage of the BTFP
• As the Fed undertook QT over the past year and post the debt ceiling resolution, market participants were worried if the deposits in the banking system would get drained rapidly. However, much to the Fed’s relief the drain of liquidity came primarily from the RRP and Bank Reserves remained steady. After a brief increase over the past few months, RRP balances have fallen steeply once again. The RRP facility usage dropped to approx. US$1.44 Tn on Sep 21st. Bank reserves, on the other hand, held up well and remained steady at ~US$3.2 Tn – almost the same level as a year ago. This has been a very important factor for liquidity in the markets.
• The TGA account now stands at about US$640 Bn – in line with the estimates according to the last Treasury Refunding announcements.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

17th Aug 2023

Key takeaway: With the March banking crisis almost out of memory now, focus has shifted from use of emergency liquidity facilities of the Fed to the flow of deposits from the banks / change in the level of reserves in the banking system and the level of the Treasury General Account. 

• The BTFP usage has not significantly changed in the past few weeks, but the level still remains fairly elevated at US$107bn. This is not surprising since the facility has attractive terms (i.e. ability to borrow 100% against the principal value of the bonds).
• As the Fed undertook QT over the past year and post the debt ceiling resolution, market participants were worried if the deposits in the banking system would get drained rapidly. However, much to the Fed’s relief the drain of liquidity came primarily from the RRP. The RRP facility usage dropped to approx. US$1.7 Tn on July 19th. Bank reserves, on the other hand, held up well and remained steady at ~US$3.2 Tn – almost the same level as a year ago. However, it is super important to note that the drop in RRP has plateaued for about a month now. In the month from July 19 to August 19, the RRP balance has actually climbed back up from US$1.72 Tn to US$1.82 Tn. Bank Reserves though have not fallen correspondingly and have remained steady mostly on account of the fiscal spend from the TGA.
• The TGA account now stands at about US$385 Bn. The Treasury expects this balance to eventually reach a level of around US$500-600Bn.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

20th Jul 2023

Key takeaway: With the March banking crisis almost out of memory now, focus has shifted from use of emergency liquidity facilities of the Fed to the flow of deposits from the banks / change in the level of reserves in the banking system and the level of the Treasury General Account. 

• The BTFP usage has not significantly changed in the past few weeks, but the level still remains fairly elevated at US$103bn – given the attractive parameters of the facility.
• As the Fed undertook QT over the past year and post the debt ceiling resolution, market participants were worried if the deposits in the banking system would get drained rapidly. However, that has not been the case so far. Instead the draining of liquidity has come primarily from the RRP facility, just like the Fed planned. The RRP facility has dropped to an average balance of US$1.73 Tn – almost $800bn below its peak in 2022. Bank reserves, on the other hand, have held up well at US$3.23 Tn – almost the same level as a year ago.
• The TGA account now stands at about US$530 Bn from a low of US$50bn right before the resolution of the debt ceiling crisis in early June.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

15th Jun 2023

Key takeaway: Prior to the March banking crisis, Quantitative Tightening was the flavour of the season. The Fed’s balance sheet was gradually shrinking as it let ~$95bn of Treasury and MBS securities mature every month without rolling them over. In the aftermath of the SVB/SB bankruptcy episodes, the Fed set up emergency lending facilities to provide liquidity to the market. The weekly release of the Fed’s balance sheet has hence assumed special important as it becomes a gauge for examining liquidity pressures and bank health indicators :

• Since the closure of the SVB, SB and FRB crisis, the Discount Window usage has come down substantially. Latest outstanding is approx. $3.3bn
• However, the key point to note is that usage under the BTFP is steadily rising. Latest outstanding under the BTFP facility is $102bn – up almost 25bn in the past few weeks. With some portion of this facility having been likely repaid as a part of the First Republic deal, the existing outstanding demonstrates that the take up under this facility remains high. While concerning, it is not entirely surprising given the attractive terms of the BTFP
• Lastly, average bank reserves decreased by ~$25bn in the latest weekly data. The widely held view has been that with the debt ceiling issue resolved, resumption of T Bill issuance will drain reserves from the banking system. So far, it looks like the RRP has been sharing some of this liquidity drain load. For instance, in the latest week, the TGA balance increased $50bn and the Reserves and RRP both fell $25bn each.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

18th May 2023

Key takeaway: Prior to the March banking crisis, Quantitative Tightening was the flavour of the season. The Fed’s balance sheet was gradually shrinking as it let ~$95bn of Treasury and MBS securities mature every month without rolling them over. In the aftermath of the SVB/SB bankruptcy episodes, the Fed set up emergency lending facilities to provide liquidity to the market. The weekly release of the Fed’s balance sheet has hence assumed special important as it becomes a gauge for examining liquidity pressures and bank health indicators :

• The average amount outstanding under the Discount Window increased by ~$4.5bn over the week ended 17th May 2023 to ~$9bn. While the numbers here are relatively small, it is still indicative of ongoing stress in the US banking industry.
• The average amount outstanding under the Bank Term Funding Program increased by ~$5bn over the same week to ~$86bn. End of week outstanding is also around the same ~$87bn. With some portion of this facility having been likely repaid as a part of the First Republic deal, the existing outstanding demonstrates that the take up under this facility remains high. While concerning, it is not entirely surprising given the attractive terms of the BTFP.
• FIMA Repo facility remained zero and indicates at least reduced stress in the overseas euro dollar market.
• Lastly, average bank reserves increased by ~$52bn. However, one of the key points to note on the liability side of the Fed’s Balance Sheet was that the TGA balance was down to a paltry US$68bn on 17th May 2023. The urgency to resolve the debt ceiling crisis is increasing.

The key takeaway this week is that banks continue to tap the Discount Window and the BTFP – which to some extent indicates ongoing continuing pressures in the US banking system. A large portion of the outstanding amounts under the Discount Window were on account of First Republic. However, there are other banks which are tapping at least the BTFP and hence the market remain jittery about the health of the banking system.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

4th May 2023

Key takeaway: Prior to the March banking crisis, Quantitative Tightening was the flavour of the season. The Fed’s balance sheet was gradually shrinking as it let ~$95bn of Treasury and MBS securities mature every month without rolling them over. In the aftermath of the SVB/SB bankruptcy episodes, the Fed set up emergency lending facilities to provide liquidity to the market. The weekly release of the Fed’s balance sheet has hence assumed special important as it becomes a gauge for examining liquidity pressures and bank health indicators. And this weeks release had a lot of interesting points to note :

• The average amount outstanding under the Discount Window decreased by ~$20bn over the week ended 3rd May 2023 to ~$50bn. However, the end of the week balance was down to ~$5bn. A very substantial portion of the outstanding under Primary Credit was First Republic. And with the bank being taken over and sold to JPM, the outstanding under this facility has been repaid (or effectively converted to another loan by the Fed to JPM for the takeover. This is evidenced by “Other Credit Extensions” rising from $170bn to $228bn)
• The average amount outstanding under the Bank Term Funding Program increased by ~$2bn over the same week to ~$78bn. End of week outstanding is also the same ~$75bn. With some portion of this facility having been likely repaid as a part of the First Republic deal, the existing outstanding demonstrates that the take up under this facility remains high. While concerning, it is not entirely surprising given the attractive terms of the BTFP
• On the other hand, the FIMA Repo facility is down to zero and indicates at least reduced stress in the overseas euro dollar market.
• Average RRP balance increased ~$28bn in the week ended 3rd May 2023 to ~2.67Tn. However, unlike previous weeks the rise in the RRP was entirely from Foreign Official accounts. Domestic RRP balances remained the same.
• Lastly, even though average bank reserves dropped by ~$46bn, end of week bank reserves were up by ~$76bn to a level of $3.16 Tn. This can be partly attributed to a large drawdown from the TGA compared to inflows into the TGA over the past 2-3 days.

In summary, quantitative tightening continues, which results in a reduction to the Fed’s balance sheet. However, more importantly, banks continue to tap the BTFP – which to some extent indicates ongoing continuing pressures in the US banking system. A large portion of the outstanding amounts under the Discount Window were on account of First Republic. However, there are other banks which are tapping at least the BTFP and hence the market remain jittery about the health of the banking system.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

27th Apr 2023

Key takeaway: Prior to the March banking crisis, Quantitative Tightening was the flavour of the season. The Fed’s balance sheet was gradually shrinking as it let ~$95bn of Treasury and MBS securities mature every month without rolling them over. In the aftermath of the SVB/SB bankruptcy episodes, the Fed set up emergency lending facilities to provide liquidity to the market. The weekly release of the Fed’s balance sheet has hence assumed special important as it becomes a gauge for examining liquidity pressures and bank health indicators. 

• The average amount outstanding under the Discount Window increased ~$1bn over the week ended 26th Apr 2023 to ~$71bn.
• The average amount outstanding under the Bank Term Funding Program also increased by ~$3bn over the same week to ~$76bn
• On the other hand, average amount outstanding under the FIMA Repo facility decreased by ~$17bn to ~$8bn. During the March banking panic, some foreign central banks had tapped this facility to seek USD liquidity. With the panic subsiding, the amount outstanding under the facility has reduced – which is a good sign from the perspective of dollar liquidity in the eurodollar markets
• Average RRP balance increased ~$15bn in the week ended 26th Apr 2023 to ~2.65Tn. This is an indication of the continued drain of deposits from banks and flows into govt money market funds
• Lastly, bank reserves dropped by ~$167bn – partly due to the flows into MMFs mentioned above and partly due to the April tax collection season (The Treasury General Account hence increased by ~$125bn)

In summary, quantitative tightening continues which results in a reduction to the Fed’s balance sheet. However, more importantly, banks continue to tap the Discount Window and the BTFP – which indicates ongoing continuing pressures in the US banking system. A large portion of the outstanding amounts under the Discount Window pertain to First Republic. However, there are other banks which are tapping these facilities and well and hence the market remain jittery about the health of the banking system.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

20th Apr 2023

Key takeaway: Prior to the March banking crisis, Quantitative Tightening was the flavour of the season. The Fed’s balance sheet was gradually shrinking as it let approx $95bn of Treasury and MBS securities mature every month without rolling them over. In the aftermath of the SVB/SB bankruptcy episodes, market participants are keenly watching steps taken by the the Fed to provide support and liquidity to depositary institutions. 

• The average amount outstanding under the Discount Window increased ~$2bn over the week ended 19th Apr 2023 to ~$70bn.
• On the other hand, the average amount outstanding under the Bank Term Funding Program reduced by ~$3bn over the same week to ~$74bn
• Average amount outstanding under the FIMA Repo facility decreased by ~$9bn to ~$25bn. During the March banking panic, some foreign central banks had tapped this facility to seek USD liquidity. With the panic subsiding, the amount outstanding under the facility has reduced. But it is key to note that there is still $25bn outstanding – indicating ongoing stress in USD liquidity
• Average RRP balance increased ~$42bn in the week ended 19th Apr 2023 to ~2.6Tn. This is probably an indication of the continued drain of deposits from banks and flows into govt money market funds
• Lastly, bank reserves dropped by ~$110bn – partly due to the flows into MMFs mentioned above and partly due to the April tax collection season (The Treasury General Account hence increased by ~$57bn)

Overall even though the Fed continues with its QT efforts, the amount drawn by Depositary Institutions under the Discount Window and the BTFP are increasing the size of the Fed’s balance sheet and consequently liquidity in the system.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size