US Macro Updates

Key takeaway: With QT firmly in the past, the focus of the H.4.1 release has shifted entirely to the interplay between reserves, the TGA, and the RRP — the three key plumbing variables that determine system-wide liquidity. The latest release dated 25th June 2026 presents a nuanced picture: the Fed’s balance sheet is broadly stable, but beneath the surface there are some notable shifts in the liquidity distribution across these three buckets that warrant attention.

• The overall Fed balance sheet stands at approximately $6.74Tn as of 24th June 2026 — roughly unchanged from recent weeks, but up around $73Bn compared to a year ago. The SOMA portfolio continues to evolve in composition. US Treasuries held by the Fed have risen to $4.49Tn, up a significant $275Bn year-on-year, reflecting the ongoing reinvestment of maturing MBS into Treasuries — the policy announced when QT ended in December 2025. MBS, on the other hand, have continued their slow decline to $1.96Tn, down $177Bn over the past year. The WAM shortening of the SOMA portfolio is gradually happening, but the MBS runoff remains painfully slow given still-elevated mortgage rates and subdued refinancing activity.
• Bank reserves stand at approximately $2.95Tn as of 24th June 2026 — down a notable $82Bn in the latest week and down $418Bn compared to a year ago. The year-on-year decline is the most important figure here. Reserves have now fallen meaningfully from the ~$3.3–3.5Tn range seen through much of 2025, and are approaching the levels that previously prompted the Fed to act. The LCLOR debate, which dominated discussions in 2024 and 2025, is very much back in focus. Quarter-end and month-end money market rate dynamics will be the near-term tell — any renewed spike in repo rates or SOFR would be a clear signal that system liquidity is getting uncomfortably tight.
• The TGA has climbed substantially to approximately $902Bn as of 24th June 2026 — up a very large $567Bn year-on-year and up $38Bn in the latest week alone. This is the core of the story. Post the OBBBA debt ceiling resolution, the Treasury has been aggressively rebuilding the TGA through stepped-up bill issuance. Unlike the 2023 episode — when the RRP absorbed most of the TGA refill — the RRP this time has essentially no buffer left to absorb the drain. The consequence has been a direct hit to bank reserves. The TGA at ~$900Bn is near the upper end of the Treasury’s stated target range, which means the pace of reserve drain should slow from here. But the damage to reserve levels over the past year has been considerable.
• The RRP facility balance stands at just $4Bn as of 24th June — down $166Bn year-on-year. The RRP is effectively no longer a meaningful buffer for the system. Its near-zero state means any future TGA rebuild or incremental liquidity demand will have to come directly from bank reserves. This structural shift is precisely what makes the current level of reserves — at $2.95Tn — more precarious than the headline number suggests.

The overall takeaway is that the liquidity landscape has tightened noticeably over the past year. The TGA rebuild post-OBBBA has been the primary culprit, draining reserves at a pace that the near-depleted RRP could not cushion. With reserves now at $2.95Tn and approaching LCLOR territory, the Fed’s T-Bill purchase program — dismissed by some as “backdoor QE” — may need to be ramped up to prevent a repeat of the money market stress seen at prior quarter-ends. This is a dynamic worth watching closely heading into H2 2026.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

 

29th Jan 2026

Key takeaway: The QT era which began in June 2022 has finally ended. At the October 2025 meeting, the Fed announced that it will halt is balance sheet run off on 1st Dec 2025 and will then grow balance sheet organically in line with GDP growth. In the 2.5 years of QT, the Fed reduced its balance sheet by 25%, from $9.0Tn to $6.6Tn. Generally, the banking system has been fairly stable recently. However, Reserves have now dropped below $2.8 – 3.0 Tn, which is around the level which the Fed considers to be just enough given the current GDP and the level of activity in the economy. There was some speculation around how soon the Fed would start Quantitative Easing once again. In mid December, the Fed announced that it would be commence purchases of T Bills in the secondary market to maintain an ample level of reserves. The Fed has been categorical to state that these purchases are not QE or monetary easing in any way. However, some market participants are viewing this action as backdoor QE.   

• QT finally ended on 30th November 2025. In March 2025, the Fed cut the monthly cap of maturing treasury securities from US$25Bn to US$5Bn, effectively ending QT on Treasuries at least. MBS securities were still running of at a rate of around $15Bn a month. The Fed now is reinvesting maturing MBS into US treasuries, preferably those at the shorter tenor in order to reduce the WAM of the SOMA portfolio. Reserves now stand at around $2.8Tn, though that is slightly artificially lower due to the TGA holding more than is usually targeted to be held in the account (around $800Bn).
• The Fed has cut thrice in 2025 bringing the total Fed rate reductions to 175 basis points since the commencement of the cutting cycle in September 2024. Long end rates, which had spiked up after the Fed starting cutting rates in September 2024, have fallen back again from their highs of early 2025. However, they remain higher than the low of 2H 2024 reflecting a view that growth in the US economy remains strong and inflation expectations remained relatively elevated.
• As the Fed undertook QT over 2024 and post the mid 2023 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. The 2025 debt ceiling issue was similarly resolved with the passage of the OBBBA. The Treasury ramped up T Bill issuance in order to fill up the TGA. However, this time around, unlike 2023, much of the TGA refill has come at the expense of Bank reserves. The TGA now stands at close to $900 Bn. The RRP balance is down to almost zero.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

30th Oct 2025

Key takeaway: The QT era which began in June 2022 is finally coming to an end. At the October 2025 meeting, the Fed announced that it will halt is balance sheet run off on 1st Dec 2025 and will then grow balance sheet organically in line with GDP growth. In the 2.5 years of QT, the Fed reduced its balance sheet by 25%, from $9.0Tn to $6.6Tn. Generally, the banking system has been fairly stable recently. However, Reserves have now dropped below $3.0 Tn as the government shutdown continues. Hence, monitoring overall Liquidity in the Banking system continues to be of key importance. The focus has been on LCLOR (Lowest Comfortable Level of Reserves) for some time now. Money market rates have been spiking during month and quarter ends, indicating that liquidity continues to get tighter.   

• QT finally ends on 30th November 2025. In March 2025, the Fed cut the monthly cap of maturing treasury securities from US$25Bn to US$5Bn, effectively ending QT on Treasuries atleast. MBS securities were still running of at a rate of around $15Bn a month. The Fed has announced that post 1st Dec, it will start reinvesting maturing MBS into US treasuries, preferably those at the shorter tenor in order to reduce the WAM of the SOMA portfolio. Reserves now stand at around $2.8Tn, though that is artificially lower by around $200Bn due to the government shutdown.
• The Fed has cut twice so far in 2025 bringing the total Fed rate reductions to 150 basis points. Long end rates, which had spiked up after the Fed starting cutting rates in September 2024, have fallen back again from their highs of early 2025. However, they remain higher than the low of 2H 2024 reflecting a view that growth in the US economy remains strong and inflation expectations remained relatively elevated. However, economic data has started getting a bit weaker, especially labour market data.
• As the Fed undertook QT over 2024 and post the mid 2023 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. The 2025 debt ceiling issue was similarly resolved with the passage of the OBBBA. The Treasury ramped up T Bill issuance in order to fill up the TGA. However, this time around, unlike 2023, much of the TGA refill has come at the expense of Bank reserves. The TGA now stands at close to $1.Tn. The RRP balance is down to almost zero.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

31st Jul 2025

Key takeaway: The Fed began QT in June 2022. Its been more than 2 years since the Fed began the process of reducing its balance sheet. The March 2023 banking crisis that began with Signature Bank and SVB is firmly in the past now. Generally, the market believes that the banking system is stable now. Reserve balances fell initially as the Fed undertook QT. However, since mid 2023, Reserve balances have mostly been range bound as QT sucked out balances from the RRP. With the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus has been on LCLOR (Lowest Comfortable Level of Reserves). With sharp spikes in money market rates during Sep 2024 and Dec 2024 quarter ends, liquidity in the financial system seemed to be a bit thin. Money market rates spiked at the end of March and June 2025 as well, but the spikes were not as sharp. Tariff related uncertainty and the potential for a recession, or at worse stagflation, makes liquidity monitoring even more important. Given this backdrop and the since resolved debt ceiling issue, the Fed reduced QT substantially starting May 2025.   

• QT has almost ended. In March 2025, the Fed cut the monthly cap of maturing treasury securities from US$25Bn to US$5Bn, effectively ending QT. The shorter end of the curve had come down with the Fed cutting 100 basis points in 2H 2024. However, long end rates had spiked up after the Fed starting cutting rates, reflecting a view that growth in the US economy remained strong and inflation expectations remained relatively elevated. However, economic data started getting weaker as 2025 kicked in just at a time when policy uncertainty due to tariffs started to get worse. In response, treasury yields initially scaled down rapidly hitting a low of 3.8% during the tariff announcements of early April. However, since then, with multiple trade agreements reached and tariff deadlines pushed out, treasury yields moved back up again in the4.25% to 4.5% range. The Fed has signalled only 2 rate cuts for 2025 in its last SOP of June 2025. The latest Fed meeting in July had a hawkish tilt and Chair Powell also seemed to indicate that inflation fears from tariffs, rising oil prices and global uncertainty will keep rate cuts on hold and rates possibly higher for longer. The July meeting also saw 2 members of the FOMC dissent on the rate decision. Surveys continue to indicate softer consumer sentiment. But the hard data does not yet provide the Fed sufficient ammunition for rate cuts. The MBS level remains at around US$2.15 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• As the Fed undertook QT over 2024 and post the mid 2023 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. The 2025 debt ceiling issue now stands resolved with the passage of the OBBBA. The Treasury has started ramping up T Bill issuance in order to fill up the TGA. However, unlike the 2023 episode, only US$150Bn remains in the RRP account (as of 31st July 2025). We saw sharp spikes in RRP during the Sep quarter end, Dec year end and first quarter March end when financial institutions typically hold cash to window dress accounts. Similarly short term money market rates around these periods shot up sharply – an indicator that liquidity in the system continues to get tighter. The focus now has squarely shifted on the amount of reserves in the banking system and whether or not they are deemed to be sufficient. Reserves continue be at roughly US$3.3Tn. Market participants will closely monitor the drop in Reserves as the Treasury refills the TGA to around US$800Bn.
• The TGA account had started to drift down from the October 2024 high of around US$850Bn as the debt ceiling and extraordinary measures started kicking in once again. The April and June tax collection periods resulted in the TGA balance moving a bit back up again. The balance stands at about US$400Bn on 31st July 2025.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

20th Jun 2025

Key takeaway: The Fed began QT in June 2022. Its been more than 2 years since the Fed began the process of reducing its balance sheet. The March 2023 banking crisis that began with Signature Bank and SVB is firmly in the past now. Generally, the market believes that the banking system is stable now. Reserve balances fell initially as the Fed undertook QT. However, since mid 2023, Reserve balances have mostly been range bound as QT sucked out balances from the RRP. With the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus has been on LCLOR (Lowest Comfortable Level of Reserves). With sharp spikes in money market rates during Sep 2024 and Dec 2024 quarter ends, liquidity in the financial system seemed to be a bit thin. Tariff related uncertainty and the potential for a recession, or at worse stagflation, makes liquidity monitoring even more important. Given this backdrop and the current debt ceiling issue, the Fed reduced QT substantially starting May 2025.   

• The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.2 Tn. Then in March 2025, the Fed cut the monthly cap from US$25Bn to US$5Bn, effectively ending QT. The shorter end of the curve came down with the Fed cutting 100 basis points in 2H 2024. Since the Fed starting cutting rates, long term yields moved sharply up reflecting a view that growth in the US economy remains strong and inflation expectations remain relatively elevated. However, economic data started getting weaker as 2025 kicked in just at a time when policy uncertainty due to tariffs started to get worse. In response, treasury yields initially scaled down rapidly. However, since then, treasury yields have shot up at unprecedented speed. This has flummoxed markets and is the single biggest scare factor in markets today. The Director of the National Economic Council, Kevin Hassett, even admitted in an interview that the Treasury market blowing up prompted urgency in the tariff rollback decision. The Fed has continued to signal only 2 rate cuts for 2025 in its latest SOP of June 2025. The latest Fed meeting outcome had a bearish tilt and Jerome Powell also seemed to indicate that inflation fears from tariffs, rising oil prices and global uncertainty will keep rate cuts on hold and rates possibly higher for longer. QT has effectively ended. Surveys continue to indicate softer consumer sentiment. But the hard data does not yet provide the Fed sufficient ammunition for rate cuts. The MBS level remains at around US$2.15 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP facility has been mostly repaid.   
• As the Fed undertook QT over 2024 and post the mid 2023 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. The RRP balance as of 18th June 2025 stands at roughly US$200bn. We saw sharp spikes in RRP during the Sep quarter end, Dec year end and first quarter March end when financial institutions typically hold cash to window dress accounts. Similarly short term money market rates around these periods shot up sharply – an indicator that liquidity in the system continues to get tighter. The focus now has squarely shifted on the amount of reserves in the banking system and whether or not they are deemed to be sufficient. Reserves continue be at roughly US$3.3Tn.
• The TGA account is now at US$380 Bn. It had started to drift down from the October 2024 high of around US$850Bn as the debt ceiling and extraordinary measures started kicking in once again. The April and June tax collection periods resulted in the TGA balance moving a bit back up again. The balance stands at about US$380Bn on 18th June 2025. We can expect the Treasury to continue drawing down on the TGA. Once the debt ceiling is extended, the Fed will commence its process of rebuilding the TGA. Unlike the last debt ceiling episode in mid 2023, this time around there isn’t sufficient balance in the RRP to absorb the entire TGA rebuild. i.e. there might be potential repercussions on system wide liquidity once the debt issuance process starts again.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

15th May 2025

Key takeaway: The Fed began QT in June 2022. Its been more than 2 years since the Fed began the process of reducing its balance sheet. The March 2023 banking crisis that began with Signature Bank and SVB is firmly in the past now. Generally, the market believes that the banking system is stable now. Reserve balances fell initially as the Fed undertook QT. However, since mid 2023, Reserve balances have mostly been range bound as QT sucked out balances from the RRP. With the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus has been on LCLOR (Lowest Comfortable Level of Reserves). With sharp spikes in money market rates during Sep 2024 and Dec 2024 quarter ends, liquidity in the financial system seemed to be a bit thin. Tariff related uncertainty and the potential for a recession, or at worse stagflation, makes liquidity monitoring even more important. Given this backdrop and the current debt ceiling issue, the Fed reduced QT substantially starting May 2025.   

• The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.2 Tn. The in March 2025, the Fed cut the monthly cap from US$25Bn to US$5Bn, effectively ending QT. The shorter end of the curve came down with the Fed cutting 100 basis points in 2H 2024. Since the Fed starting cutting rates, long term yields moved sharply up reflecting a view that growth in the US economy remains strong and inflation expectations remain relatively elevated. However, economic data started getting weaker as 2025 kicked in just at a time when policy uncertainty due to tariffs started to get worse. In response, treasury yields initially scaled down rapidly. However, since then, treasury yields have shot up at unprecedented speed. This has flummoxed markets and is the single biggest scare factor in markets today. The Director of the National Economic Council, Kevin Hassett, even admitted in an interview that the Treasury market blowing up prompted urgency in the tariff rollback decision. The Fed has signalled only 2 rate cuts for 2025 in its last SOP. We will get an update on this view in the June SOP. Jerome Powell, in his latest interview, has continued to pour water on the idea that Fed will cut rates in a hurry. QT might have ended. Surveys might be indicating softer consumer sentiment. But the hard data does not yet provide the Fed sufficient ammunition for rate cuts. The MBS level remains at around US$2.2 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP facility has been mostly repaid.   
• As the Fed undertook QT over 2024 and post the mid 2023 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. The RRP balance as of 15th May 2025 stands at roughly US$160bn. We saw sharp spikes in RRP during the Sep quarter end, Dec year end and first quarter March end when financial institutions typically hold cash to window dress accounts. Similarly short term money market rates around these periods shot up sharply – an indicator that liquidity in the system continues to get tighter. The focus now has squarely shifted on the amount of reserves in the banking system and whether or not they are deemed to be sufficient. Reserves continue be at roughly US$3.3Tn.
• The TGA account is now at US$562 Bn. It had started to drift down from the October 2024 high of around US$850Bn as the debt ceiling and extraordinary measures started kicking in once again. The April tax collection period caused the balance to spike up from the $300Bn level seen last month. We can expect the Treasury to continue drawing down on the TGA. If the debt ceiling is resolved without much ado and time delay, we will likely see the TGA hold at these levels. However, those political actions are not here yet.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

10th Apr 2025

Key takeaway: The Fed began QT in June 2022. Its been more than 2 years since the Fed began the process of reducing its balance sheet. The March 2023 banking crisis that began with Signature Bank and SVB is firmly in the past now. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus has been on LCLOR (Lowest Comfortable Level of Reserves). With sharp spikes in money market rates during Sep 2024 and Dec 2024 quarter ends, liquidity in the financial system seems to be a bit thin. And finally, tariff related uncertainty and the potential for a recession, or at worse stagflation, makes liquidity monitoring even more important.  

• The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.2 Tn. The in March 2025, the Fed cut the monthly cap from US$25Bn to US$5Bn, effectively ending QT. The shorter end of the curve came down with the Fed cutting 100 basis points in 2H 2024. Since the Fed starting cutting rates, long term yields moved sharply up reflecting a view that growth in the US economy remains strong and inflation expectations remain relatively elevated. However, economic data started getting weaker as 2025 kicked in just at a time when policy uncertainty due to tariffs started to get worse. In response, treasury yields initially scaled down rapidly. However, since then, treasury yields have shot up at unprecedented speed. This has flummoxed markets and is the single biggest scare factor in markets today. The Director of the National Economic Council, Kevin Hassett, even admitted in an interview that the Treasury market blowing up prompted urgency in the tariff rollback decision. The Fed had signalled only 2 rate cuts for 2025 in its last meeting. But the market is now pricing 4 rate cuts. Jerome Powell, on the other hand, in his latest interview poured some further cold water on the idea of the Fed loosening too soon. QT might have ended. But the hard data does not yet provide the Fed sufficient ammunition for rate cuts. The MBS level remains at around US$2.2 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP facility has been mostly repaid.   
• As the Fed undertook QT over 2024 and post the mid 2023 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. The RRP balance as of 9th April 2025 stands at roughly US$170bn. We saw sharp spikes in RRP during the Sep quarter end and the Dec year end when financial institutions typically hold cash to window dress accounts. Similarly short term money market rates around these periods shot up sharply – an indicator that liquidity in the system continues to get tighter. The focus now has squarely shifted on the amount of reserves in the banking system and whether or not they are deemed to be sufficient. Reserves continue be at roughly US$3.5Tn. In fact they have gone up over the last couple of months. Nonetheless, the Fed thought this was an opportune time to effectively end QT.
• The TGA account has come down to US$315 Bn. It has started to drift down from the October 2024 high of around US$850Bn. As the debt ceiling and extraordinary measures kick in once again, we can expect the Treasury to continue drawing down on the TGA. If the debt ceiling is resolved without much ado and time delay, we will likely see the TGA hold at these levels. However, those political actions are not here yet.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

6th Mar 2025

Key takeaway: The Fed began QT in June 2022. Its been more than 2 years since the Fed began the process of reducing its balance sheet. The March 2023 banking crisis that began with Signature Bank and SVB is firmly in the past now. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus has been on LCLOR (Lowest Comfortable Level of Reserves). With sharp spikes in money market rates during Sep 2024 and Dec 2024 quarter ends, liquidity in the financial system seems to be a bit thin. 

• The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.2 Tn. The shorter end of the curve came down with the Fed cutting 100 basis points in 2H 2024. Since the Fed starting cutting rates, long term yields moved sharply up reflecting a view that growth in the US economy remains strong and inflation expectations remain relatively elevated. However, economic data started getting weaker as 2025 kicked in just at a time when policy uncertainty due to tariffs started to climb higher. In response, treasury yields have rapidly scaled down again. The Fed has now signalled only 2 rate cuts for 2025 and the market is now pricing 2-3 rate cuts. The MBS level remains at around US$2.2 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP facility has been mostly repaid.   
• As the Fed undertook QT over 2024 and post the mid 2023 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. The RRP balance as of 6th March 2025 stands at roughly US$140bn. We saw sharp spikes in RRP during the Sep quarter end and the Dec year end and financial institutions hold cash to window dress accounts. Similarly short term money market rates around these periods shot up sharply – an indicator that liquidity in the system continues to get tighter. The focus now has squarely shifted on the amount of reserves in the banking system and whether or not they are deemed to be sufficient. Reserves continue be at roughly US$3.3Tn. Given the above dynamic, it seems highly likely that QT will stop by mid 2025. Any further weakening of economic data would likely further add to the possibility of a pause / stop on QT.
• The TGA account continues to be at a substantial US$550 Bn. It has started to drift down from the October 2024 high of around US$850Bn. As the debt ceiling and extraordinary measures kick in once again, we can expect the Treasury to continue drawing down on the TGA. If the debt ceiling is resolved without much ado and time delay, we will likely see the TGA hold at these levels.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

16th Jan 2025

Key takeaway: The Fed began QT in June 2022. Its been more than 2 years since the Fed began the process of reducing its balance sheet. The March 2023 banking crisis that began with Signature Bank and SVB is firmly in the past now. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus has been on LCLOR (Lowest Comfortable Level of Reserves). With sharp spikes in money market rates during Sep 2024 and Dec 2024 quarter ends, liquidity in the financial system seems to be a bit thin. 

• The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.3 Tn. The shorter end of the curve came down with the Fed cutting 100 basis points in 2H 2024. Since the Fed starting cutting rates, long term yields have moved sharply up reflecting a view that growth in the US economy remains strong and inflation expectations remain relatively elevated. The Fed has now signalled only 2 rate cuts for 2025 and the market is pricing in just one! The MBS level remains at around US$2.3 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The outstanding balance under the BTFP has fallen substantially from its peak of approx. US$160Bn as loans have come due and been repaid. Only US$1.3Bn now remains outstanding.   
• As the Fed undertook QT over 2024 and post the mid 2023 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. The RRP balance as of 15th January 2025 stands at roughly US$119bn. We saw sharp spikes in RRP during the Sep quarter end and the Dec year end and financial institutions hold cash to window dress accounts. Similarly short term money market rates around these periods shot up sharply – an indicator that liquidity in the system continues to get tighter. The focus now has squarely shifted on the amount of reserves in the banking system and whether or not they are deemed to be sufficient. Reserves continue be at roughly US$3.3Tn. Given the above dynamic, it seems highly likely that QT will stop by mid 2025.
• The TGA account continues to be at a substantial US$650 Bn. It has started to drift down from the October 2024 high of around US$850Bn. As the debt ceiling and extraordinary measures kick in once again, we can expect the Treasury to continue drawing down on the TGA. If the debt ceiling is resolved withough much ado and time delay, we will likely see the TGA hold at these levels.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

4th Dec 2024

Key takeaway: It has been more than a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus this year has been on LCLOR (Lowest Comfortable Level of Reserves). 

• The most significant development in the Treasury market this year has been the Fed’s move to taper QT beginning June 2024. The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.3 Tn. The pace of reduction is expected to slow down with the QT taper having commenced in June. This has alleviated the upward pressure on bond yields to some extent. Moreover, the shorter end of the curve has started to come down with the Fed cutting rates. However, where longer term treasury yields will end up at will remain a function of growth in the economy and accordingly inflation expectations and the term premium. In a rather surprising turn of events, we saw long term bond yields rise significantly after the Fed cut rates by 50 bps in mid September. The Fed is on track to cut rates in December by 25 bps. However, the number of rate cuts for 2025 remain highly uncertain. The MBS level remains at around US$2.3 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 4th December 2024, the balance in the BTFP facility was just US$17 Bn. The outstanding balance under the BTFP has fallen substantially from its peak of approx. US$160Bn as loans have come due and been repaid.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. The RRP balance as of 4th December 2024 stand at roughly US$150bn. As this level comes closer to zero, focus will squarely be on the amount of reserves in the banking system and whether or not they are deemed to be sufficient.
• The TGA account continues to be at a substantial US$815 Bn. The Treasury has so far indicated that it intends to keep its balance at around US$750Bn – 850Bn. Given the high fiscal spend, that translates to continued incremental bill issuance by the treasury. However, the latest Treasury refunding announcement for the 4th quarter of calendar 2024 shows a net increase in bills of only US$70Bn. However, the net incremental issuance of bills is expected to climb to US$370Bn in 1Q calendar 2025.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

30th Oct 2024

Key takeaway: It has been more than a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system continues to be of key importance now. The focus this year has been on LCLOR (Lowest Comfortable Level of Reserves). 

• The most significant development in the Treasury market this year has been the Fed’s move to taper QT beginning June 2024. The Fed, in May 2024, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.4 Tn. The pace of reduction is expected to slow down with the QT taper having commenced in June. This has alleviated the upward pressure on bond yields to some extent. Moreover, the shorter end of the curve has started to come down with the Fed cutting rates. However, where longer term treasury yields will end up at will remain a function of growth in the economy and accordingly inflation expectations and the term premium. In a rather surprising turn of events, we saw long term bond yields rise significantly after the Fed cut rates by 50 bps in mid September. The Fed is on track to cut rates in November by 25 bps and the market is pricing in almost 80% probability of another 25 bps rate cut in the December meeting. The MBS level remains at around US$2.3 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 30th Oct 2024, the balance in the BTFP facility was US$58 Bn. The outstanding balance under the BTFP has fallen substantially from its peak of approx. US$160Bn and the slow run off is likely to continue.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. The RRP balance as of 30th October 2024 stand at roughly US$228bn. As this level comes closer to zero, focus will squarely be on the amount of reserves in the banking system and whether or not they are deemed to be sufficient.
• The TGA account continues to be at a substantial US$850 Bn. The Treasury has so far indicated that it intends to keep its balance at around US$750Bn – 850Bn. Given the high fiscal spend, that translates to continued incremental bill issuance by the treasury. However, the latest Treasury refunding announcement for the 4th quarter of calendar 2024 shows a net increase in bills of only US$70Bn. However, the net incremental issuance of bills is expected to climb to US$370Bn in 1Q calendar 2025.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

26th Sep 2024

Key takeaway: It has been more than a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system is of key importance now. The focus this year has been on LCLOR (Lowest Comfortable Level of Reserves). 

• The most significant development in the Treasury market this year has been the Fed’s move to taper QT beginning June 2024. The Fed, in May, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.4 Tn. The pace of reduction is expected to slow down with the QT taper having commenced in June. This has alleviated the upward pressure on bond yields to some extent. Moreover, the shorter end of the curve has started to come down with the Fed cutting rates. However, where longer term treasury yields will end up at will remain a function of growth in the economy and accordingly inflation expectations and the term premium. The MBS level remains at around US$2.3 Tn and has been slow to come down given the lower refinancing activity in the mortgage market.
• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 25th September 2024, the balance in the BTFP facility was US$86 Bn. The outstanding balance under the BTFP has fallen substantially from its peak of approx. US$160Bn and the slow run off is likely to continue.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. RRP balances continue to fall but the pace of reduction is far slower now than in 2023. The RRP balance now stand at roughly US$416bn. The balance has jumped up substantially in the last 2 weeks, but that is most likely attributable to quarter end dynamics of the banks and repo dealers.
• The TGA account continues to be at a substantial US$800 Bn. The Treasury has so far indicated that it intends to keep its balance at around US$750Bn. Given the high fiscal spend, that translates to continued incremental bill issuance by the treasury. As per the latest Treasury refunding announcement, the Treasury expects to issue US$180Bn and US$90Bn of bills in the Apr to Sep and Oct to Dec quarters.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

15th Aug 2024

Key takeaway: It has been almost a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system is of key importance now. The focus has now shifted to the topic of LCLOR (Lowest Comfortable Level of Reserves). 

• The most significant development in the Treasury market this year has been the Fed’s move to taper QT beginning June 2024. The Fed, in May, announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The reduction commenced from June 2024. US Treasuries held by the Fed have declined from a high of US$5.8 Tn in April 2022 to the current level of US$4.4 Tn. The pace of reduction is expected to slow down with the QT taper starting June. This has alleviated the upward pressure on bond yields to some extent. The cap on MBS remains the same at US$35Bn per month, though given the high mortgage rates and consequent low refinancings, prepayments of MBS have remained substantially low and the cap is not being hit. However, with rates moving lower in recent weeks we have started seeing some mild increases in mortgage refinancing. The focus now shifts to how long will QT remain in effect?
• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 14th August 2024, the balance in the BTFP facility was US$100 Bn. The outstanding balance under the BTFP has fallen substantially from its peak of approx. US$160Bn and the run off is likely to continue.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. The fall in RRP balances levelled off since February 2024 as inflation came in hotter than expected during the first few months of the year and as the Treasury reduced the amount of bills auctioned in 2Q 2024. However, in the last few weeks we have once again seen a reduction in the RRP balance as rate cuts appear firmly on the horizon. Market participants are likely to move money out of the RRP (which is a daily balance) to bills which are of higher maturities than 1 day. The RRP balance now stand at roughly US$307bn – about US$150-200bn lower than the level seen in February 2024.
• The TGA account now stands at a substantial US$800 Bn. The Treasury has so far indicated that it intends to keep its balance at around US$750Bn. Given the high fiscal spend, that translates to continued incremental bill issuance by the treasury. As per the latest Treasury refunding announcement, the Treasury expects to issue US$180Bn and US$90Bn of bills in the Apr to Sep and Oct to Dec quarters.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

23rd May 2024

Key takeaway: It has been almost a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system is of key importance now. The focus has now shifted to the topic of LCLOR (Lowest Comfortable Level of Reserves). 

• The most significant development in the Treasury market has been the Fed’s move to taper QT beginning June 2024. The Fed announced that it will reduce the monthly cap on maturing US Treasury securities from US$60Bn to US$25Bn. The cap on MBS remains the same at US$35Bn per month, though given the high mortgage rates and consequent low refinancings, prepayments of MBS have remained substantially low and the cap is not being hit. The tapering of QT has helped calm volatility in the US treasury market. The focus now shifts to how long will QT remain in effect?
• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 22nd May 2024, the balance in the BTFP facility was US$109 Bn. The outstanding balance under the BTFP has fallen substantially from its peak of approx. US$160Bn and the run off is likely to continue.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. However, the fall in RRP balances has levelled off since February 2024 as inflation came in hotter than expected during the first few months of the year and as the Treasury reduced the amount of bills auctioned in 2Q 2024. The RRP balance now stand at roughly US$496bn – at the same level as February. Another notable development in this aspect, has been the sharp rise in RRP balance of Foreign Official and International accounts. This category has seen an increase in balances from US$290Bn in October 2023 to US$370Bn in May 2024. A large part of the increase has been attributed to the Japanese Central Bank keeping liquid monies with the NY Fed for use in the Fx markets to help stabilize the precipitously falling JPY.
• The TGA account now stands at US$710 Bn – almost US$200Bn lower than its balance a month ago. The reduced bill issuance in Q2 2024 and continued fiscal spend will result in the TGA falling further as we get close to the election date. However, the Treasury has so far indicated that it intends to keep its balance at around US$750Bn. If that is indeed the assumption, we will likely see a pick up again in bill and bond issuance.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

25th Apr 2024

Key takeaway: It has been almost a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system is of key importance now. The focus has now shifted to the topic of LCLOR (Lowest Comfortable Level of Reserves). And the key question is whether the Fed slows down QT before the Reverse Repo balances get close to zero. 

• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 20th Mar 2024, the balance in the BTFP facility was US$150 Bn. One of the notable points has been the sizeable amount of loans drawn by some of the (unnamed) banks during the couple of weeks of the BTFP program. Since the Fed had already increased pricing on the BTFP facility, it is unlikely that the Banks that drew on the facility right before its expiry did so for pricing arbitrage. In other words, it can still be taken as an indication of stress in the banking sector.  Nonetheless, the balance under the BTFP continues to fall as banks repay their BTFP liabilities on maturity.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. The RRP balance now stand at roughly US$440bn. And market participants expect this balance to move down to zero over the next few months based on the bill issuance trajectory of the Treasury and the interest rate outlook. It is also key to note that with the recent higher-than-expected inflation prints the interest rate outlook has changed in the past few weeks. Hence, the pace of reduction of the RRP balances has also slowed down since mid-February. Bank reserves, on the other hand, have held up well. April is tax collection month. Hence it is normal to see movement of balances from Bank Reserves to the TGA as evidenced in the latest release
• The TGA account now stands at a mammoth US$929 Bn. The recent surge in the TGA account can be attributed to the recent issuances of treasury bonds and notes, a slowdown in spending on the back of the political imbroglio in Washington DC and better than expected fiscal receipts including the latest tax collections of April. It will be reasonable to expect liquidity to drain from the TGA into the Banking system over the run up period to the elections in November

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

21st Mar 2024

Key takeaway: It has been almost a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system is of key importance now. The focus has now shifted to the topic of LCLOR (Lowest Comfortable Level of Reserves). And the key question is whether the Fed slows down QT before the Reverse Repo balances get close to zero. 

• The BTFP program has expired. However, it is key to remember that the loans will remain outstanding till they come due. As of 20th Mar 2024, the balance in the BTFP facility was US$150 Bn. One of the notable points has been the sizeable amount of loans drawn by some of the (unnamed) banks during the couple of weeks of the BTFP program. Since the Fed had already increased pricing on the BTFP facility, it is unlikely that the Banks that drew on the facility right before its expiry did so for pricing arbitrage. In other words, it can still be taken as an indication of stress in the banking sector.  
• As the Fed undertook QT over the past year and post the mid 2023 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 during the third quarter of 2023, RRP balances continued to fall as the Treasury continued to heavily issue bills. The RRP balance now stand at roughly US$500bn. And market participants expect this balance to move down to zero over the next couple of months based on the bill issuance trajectory of the Treasury and the interest rate outlook. Bank reserves, on the other hand, have held up well. In fact Bank Reserves now stand at approx US$3.6 Tn – significantly above the US$3.1 Tn in March 2023.  However, with the RRP substantially down, attention is shifting to LCLOR or the minimum amount of required levels in the US banking system.
• The TGA account now stands at about US$812 Bn. The recent surge in the TGA account can be attributed to the recent issuances of treasury bonds and notes, a slowdown in spending on the back of the political imbroglio in Washington DC and better than expected fiscal receipts. But we can gradually expect the TGA to come down a bit.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

8th Feb 2024

Key takeaway: It has been almost a year since the March banking crisis that began with Signature Bank and SVB. Generally, the market believes that the banking system is stable now. However, as QT continues to be in effect and the RRP balance substantially down, monitoring overall Liquidity in the Banking system is of key importance now. 

• The Fed has announced that the BTFP will cease making new loans from 11th March 2024. Given the imminent closure of this emergency liquidity facility and the attractive terms at which it was offered, we saw more banks take up loans under the facility over the past few weeks. The outstanding balance now stands at $165bn. The closure of the facility on March 11th does not mean that these outstanding loans will be repaid by that date. Most of these were annual loans and we will see a gradual decline in the outstanding balance over the next 12 months.  
• As the Fed undertook QT over the past year and post the mid 2023 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 continued to fall as the Treasury continued to heavily issue bills. There was a large spike in the RRP balance in December. However, that is not a cause for concern nor a change in trend and quite common given year end window dressing of their balance sheet by banks. RRP balances have declined further since December and now stand at roughly US$550bn. Bank reserves, on the other hand, have held up well and in the recent few months have inched up to US$3.6 Tn (higher than the level a year ago). This has been a very important factor for liquidity in the markets. However, with the RRP substantially down, attention is shifting to LCLOR or the minimum amount of required levels in the US banking system.
• The TGA account now stands at about US$820 Bn. The recent surge in the TGA account can be attributed to the recent issuances of treasury bonds and notes, a slowdown in spending on the back of the political imbroglio in Washington DC and better than expected fiscal receipts. But we can gradually expect the TGA to come down a bit.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

4th Jan 2024

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 spiked, but the level has been creeping up and now stands at approx. US$141bn. While this is not surprising since the facility has attractive terms (i.e. ability to borrow 100% against the principal value of the bonds), it is still important to note that a lot of Banks continue to use this facility to spruce up their funding. It is also key to remember that this facility stands to expire on 31st Mar 2024 unless the Fed renews it. 
• As the Fed undertook QT over the past year and post the mid 2023 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 continued to fall as the Treasury continued to heavily issue bills. There has been a large spike in the RRP balance in December. However, that is not a cause for concern nor a change in trend and quite common given year end window dressing of their balance sheet by banks. Likewise, Bank reserves, on the other hand, have held up well and in the recent few months 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$743 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 we can gradually expect the TGA to come down a bit.

Bank Reserve Balances

Securities held by the Fed

Fed Balance Sheet size

16th Nov 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 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