Liquidity: Improved, By Likely Unsustainable

Liquidity: Improved, By Likely Unsustainable

Welcome to The Observatory. The Observatory is how we at Prometheus monitor the evolution of the economy and financial markets in real-time. The insights provided here are slivers of our research process that are integrated algorithmically into our systems to create rules-based portfolios.

Some of the most significant and complicating factors to the current market picture have been the cross-currents in the liquidity ecosystem. The most recent data suggests that there has been a modest improvement in short-term liquid instruments over the last few weeks. Below, we show our tracking of several key short-term storeholds of liquidity. This does not comprise all potential sources of liquidity but includes those that are particularly relevant to the financial system and markets, i.e., reserve balances, money market funds, and commercial paper:

As shown above, these measures have improved significantly from last year’s declines. This improvement was driven by a significant increase in money market fund inflows and a slowdown in reserve contraction at the Federal Reserve. Below, we show how a combination of households and corporates inflows have typically dominated these money market flows:

Households and corporate recycle their savings into financial assets. Depending on the economic environment, they choose between highly liquid investments with minimal returns and less-liquid assets with higher returns. The nominal gains of this economic cycle have primarily found their way into the former, i.e., highly-liquid, risk-averse, short-term instruments like money markets funds. These inflows support future economic and market activity, as when conditions warrant, these cash balances can easily migrate to risk-taking activity. What is essential to recognize is that these flows are a function of the profit and income activity in the economy. As we get further into a profit contraction, the flows into these products will also dwindle. Below, we show how S&P 500 profitability has entered contractionary territory:

While profits have contracted, somewhat higher personal savings have offset these declines. These savings are the primary source of inflows into money market funds. We show this modest improvement in savings below:

We now turn to the next driver of the current liquidity environment, the Federal Reserve and its balance sheet policy. Below, we show the big-picture drivers of the Fed’s assets (Treasuries & MBS) and liabilities ( Treasury Account, Reverse Repo Facility & Reserve Balances). Positive values are assets, whereas negative values are liabilities:

It is well known that the Fed is attempting to contract its balance sheet and increase interest rates to contain inflation. However, the path to balance sheet contraction has been bumpy as the severity of liquidity withdrawal has caused issues in the banking systems, forcing the Fed to perform emergency operations that increase liquidity in the financial system. Over the last quarter, the Fed assets have increased by 1.4%:

As we can see above, while the Fed has continued to reduce its Treasury & MBS holdings, emergency loans have increased the size of the balance sheet over the past quarter. Alongside this change in assets, we have seen liabilities (ex-reserves) roughly flat. Below, we show the composition of the changes in liabilities:

As the debt ceiling debate continues, this flatling of liabilities ex-reserves was primarily driven by significant spending from the Treasury General Account at the Fed. These factors led to a meaningful increase in reserve balances over the last quarter. The change in reserve balances is the critical determinant of how much the Federal Reserve’s balance sheet reduction impacts financial markets. Reserve balances are determined by the level of the Fed’s assets net of their other liabilities. Below, we show how assets and liabilities have come together to drive reserves over the last quarter:

Looking ahead, without a sustained debt ceiling problem and sustained loan expansion to the private sector— we think it is essential to consider that reserve balances will likely resume their downward path as the Fed attempts to control financial conditions. This remains a significant headwind for liquidity.

Finally, we turn to commercial paper, where we see the most softening over the last quarter. However, commercial paper changes have not been adequate to overpower the changes in money markets and reserves. Below, we show the yearly changes and composition of commercial paper markets:

Zooming into the most recent quarter, we see significant weakness in financial sector commercial paper issuance, which is consistent with funding stress within the sector:

Overall, the liquidity picture remains supported by strong nominal incomes in the economy and moderation in the pace of the Fed’s tightening. Given the cyclical pressures present in the economy today, it is hard to see these dynamics persisting. Additionally, the more money market inflows persist through high nominal activity, the more the Fed will have to curtail liquidity. Therefore, while liquidity has improved due to these dynamics, it is unlikely to be sustained by them. This is a headwind for assets. Until next time.

260 thoughts on “Liquidity: Improved, By Likely Unsustainable”

  1. Hi! Do you know if they make any plugins to help with Search
    Engine Optimization? I’m trying to get my site to rank for some targeted keywords
    but I’m not seeing very good gains. If you know
    of any please share. Many thanks! You can read similar text here:
    Wool product

  2. sugar defender official website Incorporating Sugar Protector into my everyday routine has actually been a game-changer for
    my total well-being. As a person that already prioritizes healthy and balanced consuming, sugar defender ingredients this supplement has actually supplied an added
    boost of security. in my energy degrees, and my desire for undesirable snacks so uncomplicated
    can have such an extensive influence on my day-to-day
    live.

  3. sugar defender ingredients Sugarcoating Defender to my day-to-day routine was just one of the best choices I’ve created my health and wellness.
    I beware concerning what I eat, but this supplement includes an added layer
    of assistance. I feel extra constant throughout the day, and my food
    cravings have decreased dramatically. It’s nice to have something so straightforward that makes such a huge distinction! sugar defender ingredients

  4. sugar defender Discovering Sugar Protector has actually been a game-changer for me, as I’ve always been vigilant regarding
    handling my blood sugar level levels. With this supplement, I really feel encouraged to take charge of my wellness,
    and my most current medical examinations have actually mirrored a considerable
    turn-around. Having a reliable ally in my corner gives me with a sense of security and reassurance, and I’m deeply thankful for
    the profound difference Sugar Defender has made in my health.
    sugar defender official website

  5. sugar defender reviews Incorporating Sugar Defender right into my everyday regimen has
    actually been a game-changer for my total health.
    As someone that currently prioritizes healthy eating, this supplement has actually given an included increase of protection. in my power levels, and my desire for harmful treats so effortless can have such
    a profound effect on my daily life. sugar defender

  6. sugar defender reviews For years, I’ve fought unpredictable blood glucose swings that left me really feeling drained pipes and lethargic.
    But considering that including Sugar my power degrees are currently steady and
    constant, and I no longer strike a wall in the afternoons.
    I value that it’s a gentle, all-natural approach that doesn’t featured any type of undesirable negative effects.
    It’s really transformed my every day life. sugar defender
    reviews

  7. sugar defender ingredients Finding Sugar Protector has actually been a game-changer for me,
    as I’ve always been vigilant about managing my blood sugar degrees.

    With this supplement, I feel equipped to organize my wellness,
    and my latest medical examinations have actually reflected a significant turnaround.

    Having a trustworthy ally in my edge provides me with a sense of security and confidence, and I’m deeply happy for the profound difference Sugar Protector has made in my wellness.

  8. Howdy! This article could not be written much better! Looking through this post reminds me of my previous roommate! He constantly kept preaching about this. I’ll send this post to him. Pretty sure he will have a good read. Thanks for sharing!

  9. Nice post. I learn something totally new and challenging on blogs I stumbleupon on a daily basis. It’s always useful to read through content from other writers and practice something from their sites.

  10. I seriously love your site.. Excellent colors & theme. Did you make this amazing site yourself? Please reply back as I’m looking to create my own blog and would like to learn where you got this from or exactly what the theme is called. Thank you!

  11. I’m very happy to uncover this website. I wanted to thank you for your time just for this wonderful read!! I definitely loved every part of it and I have you saved as a favorite to look at new stuff on your blog.

  12. I’d like to thank you for the efforts you’ve put in penning this blog. I really hope to check out the same high-grade blog posts from you later on as well. In fact, your creative writing abilities has motivated me to get my own site now 😉

  13. An extremely good post. This post sums up for me just what this topic is all about and some of the major benefits that can be produced by knowing about it just like you. A friend once pointed out that you have a totally different approach when you do something for certain as opposed to when you’re simply just toying with it. In the case of this specific topic, I believe you’re taking, or start to go for, a more professional plus thorough approach to what and how you’re writing, which in turn helps you to continue to get better and help others who don’t know anything at all about what you have discussed here. Thank you.

  14. Can I simply say what a relief to discover someone that really understands what they’re discussing online. You definitely understand how to bring a problem to light and make it important. More and more people really need to check this out and understand this side of your story. I was surprised that you aren’t more popular because you definitely have the gift.

  15. I discovered your site website on bing and appearance many of your early posts. Preserve within the really good operate. I just now extra increase Rss to my MSN News Reader. Seeking forward to reading much more of your stuff afterwards!…

  16. Heya just wanted to give you a brief heads up and let you know a few of the pictures aren’t loading correctly. I’m not sure why but I think its a linking issue. I’ve tried it in two different web browsers and both show the same results.

  17. Thanks for another informative site. Where else could I get that type of information written in such an ideal way? I’ve a project that I am just now working on, and I have been on the look out for such information.

  18. Nice post. I understand something harder on various blogs everyday. It will always be stimulating to see content from other writers and practice a little something from their website. I’d want to use some together with the content on my weblog regardless of whether you don’t mind. Natually I’ll supply you with a link on your own internet blog. Thank you sharing.

  19. This is really important, You’re a remarkably expert article author. I’ve joined with your feed and also count on reading your excellent write-ups. In addition to that, I’ve shared your websites inside our web pages.

  20. I absolutely love your website.. Very nice colors & theme. Did you develop this web site yourself? Please reply back as I’m wanting to create my own site and would love to learn where you got this from or just what the theme is named. Appreciate it!

  21. I was just searching for this information for a while. After six hours of continuous Googleing, at last I got it in your website. I wonder what is the lack of Google strategy that don’t rank this type of informative web sites in top of the list. Generally the top websites are full of garbage.

  22. Nice blog here! Additionally your website loads up very fast! What web host are you the usage of? Can I am getting your associate link on your host? I wish my website loaded up as quickly as yours lol

  23. Hmm is anyone else encountering problems with the pictures on this blog loading? I’m trying to figure out if its a problem on my end or if it’s the blog. Any responses would be greatly appreciated.

  24. Youre so cool! I dont suppose Ive read anything like this before. So nice to search out any person with some original thoughts on this subject. realy thank you for starting this up. this website is something that’s wanted on the net, someone with somewhat originality. useful job for bringing something new to the web!

  25. Quite easily, the article is in reality the sweetest on this laudable topic. I agree with your conclusions and definitely will eagerly look forward to your approaching updates. Simply just saying thanks will certainly not simply just be sufficient, for the outstanding lucidity in your writing. I can right away grab your rss feed to stay privy of any updates. Good work and much success in your business efforts!

  26. Considerably, the actual publish is usually the finest about this deserving topic. I agree with your results and in addition may excitedly anticipate your potential updates. Simply just stating thank you will not merely you should be sufficient, for that wonderful quality inside your writing. I’ll right away seize your rss feed to stay up-to-date with any kind of updates. Genuine perform and in addition much achievement inside your enterprise dealings!

  27. This is some enjoyable stuff. It took me a while to locate this website but it was worth the time. I noticed this page was buried in google and not the number one spot. This web site has a ton of nice stuff and it does not deserve to be burried in the search engines like that. By the way Im going to save this website to my favorites.

  28. I was more than happy to find this great site. I need to to thank you for your time due to this wonderful read!! I definitely really liked every part of it and I have you saved as a favorite to look at new stuff in your website.

  29. Hi there, just became aware of your blog through Google, and found that it’s truly informative. I’m going to watch out for brussels. I’ll be grateful if you continue this in future. Numerous people will be benefited from your writing. Cheers!

  30. Hi there! This post could not be written any better! Looking at this post reminds me of my previous roommate! He continually kept preaching about this. I will send this article to him. Fairly certain he will have a good read. Thank you for sharing!

  31. Hello there! Are you aware when they help to make virtually any extensions to assist together with SEO? I’m trying to get my personal website to rate for some targeted keywords however i’m not necessarily experiencing very good benefits. If you know of the please discuss. Be thankful!

  32. I do not know if it’s just me or if everybody else experiencing issues with your blog. It appears as though some of the text on your content are running off the screen. Can someone else please provide feedback and let me know if this is happening to them as well? This might be a issue with my web browser because I’ve had this happen before. Thanks

  33. Hello, I do believe your website may be having internet browser compatibility issues. Whenever I look at your site in Safari, it looks fine however, if opening in I.E., it has some overlapping issues. I simply wanted to provide you with a quick heads up! Besides that, great blog!

  34. Thank you pertaining to discussing that superb content material on your web site. I ran into it on the search engines. I am going to check to come back after you publish extra aricles.

  35. Nearly all goods are typically hand designed plus subsistence economic local weather dominates. Individualism is really weakly manufactured within just persons ethnicities given that are typically interpersonal programs. Unaltered customers ethnicities no extra can be determined inside industrialized nations much like the Usa plus North america.

  36. After study a handful of the blog posts on your site now, and I really as if your way of blogging. I bookmarked it to my bookmark site list and you will be checking back soon. Pls look at my internet site in addition and let me know what you believe.

  37. Good day! I could have sworn I’ve been to this blog before but after reading through some of the post I realized it’s new to me. Nonetheless, I’m definitely glad I found it and I’ll be bookmarking and checking back often!

  38. An intriguing discussion is worth comment. I do believe that you ought to publish more about this subject matter, it might not be a taboo matter but generally folks don’t talk about such issues. To the next! Best wishes!

  39. You’re so cool! I don’t think I’ve read through anything like this before. So great to discover somebody with some unique thoughts on this subject. Really.. thanks for starting this up. This site is one thing that is required on the internet, someone with a little originality.

  40. After looking into a few of the blog articles on your site, I honestly appreciate your way of blogging. I book-marked it to my bookmark site list and will be checking back in the near future. Take a look at my website too and tell me your opinion.

  41. The very next time I read a blog, Hopefully it doesn’t disappoint me as much as this particular one. After all, Yes, it was my choice to read, nonetheless I genuinely thought you would have something interesting to talk about. All I hear is a bunch of complaining about something you could possibly fix if you were not too busy seeking attention.

  42. After looking at a few of the blog articles on your site, I honestly like your technique of blogging. I saved as a favorite it to my bookmark site list and will be checking back in the near future. Please check out my website as well and let me know what you think.

  43. I must thank you for the efforts you’ve put in writing this blog. I really hope to view the same high-grade blog posts by you in the future as well. In truth, your creative writing abilities has encouraged me to get my own, personal site now 😉

  44. After I initially left a comment I appear to have clicked the -Notify me when new comments are added- checkbox and now every time a comment is added I receive four emails with the exact same comment. Is there an easy method you can remove me from that service? Cheers.

  45. I’m amazed, I must say. Rarely do I encounter a blog that’s both educative and interesting, and without a doubt, you’ve hit the nail on the head. The issue is something which too few folks are speaking intelligently about. I am very happy that I stumbled across this in my hunt for something regarding this.

  46. Having read this I thought it was really informative. I appreciate you taking the time and effort to put this short article together. I once again find myself personally spending a lot of time both reading and commenting. But so what, it was still worthwhile.

  47. Oh my goodness! Awesome article dude! Many thanks, However I am going through problems with your RSS. I don’t understand why I cannot join it. Is there anybody else having similar RSS problems? Anyone who knows the answer will you kindly respond? Thanx!!

  48. Next time I read a blog, Hopefully it won’t disappoint me just as much as this one. After all, I know it was my choice to read, however I actually believed you would probably have something interesting to talk about. All I hear is a bunch of complaining about something you could fix if you weren’t too busy seeking attention.

  49. I was very happy to find this website. I want to to thank you for your time due to this wonderful read!! I definitely savored every bit of it and i also have you book marked to check out new information in your web site.

  50. When I originally left a comment I appear to have clicked the -Notify me when new comments are added- checkbox and now each time a comment is added I recieve four emails with the same comment. Perhaps there is a means you can remove me from that service? Thank you.

  51. Having read this I thought it was extremely enlightening. I appreciate you finding the time and effort to put this article together. I once again find myself personally spending a significant amount of time both reading and commenting. But so what, it was still worthwhile!

  52. Right here is the perfect website for anybody who wishes to understand this topic. You realize so much its almost tough to argue with you (not that I really will need to…HaHa). You certainly put a fresh spin on a topic that’s been written about for many years. Great stuff, just great.

  53. The next time I read a blog, Hopefully it doesn’t disappoint me as much as this one. After all, I know it was my choice to read through, however I really believed you’d have something useful to talk about. All I hear is a bunch of whining about something you could fix if you were not too busy searching for attention.

  54. Having read this I thought it was extremely enlightening. I appreciate you taking the time and energy to put this article together. I once again find myself personally spending a significant amount of time both reading and posting comments. But so what, it was still worthwhile.

  55. I’m very happy to find this great site. I want to to thank you for your time for this wonderful read!! I definitely savored every bit of it and i also have you saved to fav to see new information in your web site.

  56. May I simply just say what a relief to find somebody that actually understands what they’re discussing online. You certainly realize how to bring an issue to light and make it important. More and more people ought to check this out and understand this side of the story. I was surprised you’re not more popular since you definitely have the gift.

  57. Oh my goodness! an excellent write-up dude. Thanks Even so My business is experiencing problem with ur rss . Do not know why Not able to join it. Could there be anyone obtaining identical rss dilemma? Anyone who knows kindly respond. Thnkx

  58. When I originally commented I clicked the -Notify me when new surveys are added- checkbox and from now on each time a comment is added I get four emails sticking with the same comment. Is there however you may get rid of me from that service? Thanks!

  59. Can I just say what a reduction to search out someone who actually is aware of what theyre speaking about on the internet. You positively know learn how to carry a difficulty to gentle and make it important. Extra individuals have to learn this and understand this aspect of the story. I cant believe youre not more standard since you positively have the gift.

  60. Hi there! This blog post could not be written much better! Reading through this post reminds me of my previous roommate! He always kept preaching about this. I’ll send this information to him. Fairly certain he will have a great read. Many thanks for sharing!

  61. An impressive share! I have just forwarded this onto a co-worker who had been conducting a little research on this. And he actually bought me lunch due to the fact that I discovered it for him… lol. So allow me to reword this…. Thank YOU for the meal!! But yeah, thanks for spending the time to talk about this issue here on your web site.

  62. An outstanding share! I’ve just forwarded this onto a colleague who had been doing a little homework on this. And he actually ordered me lunch due to the fact that I stumbled upon it for him… lol. So let me reword this…. Thanks for the meal!! But yeah, thanks for spending the time to talk about this issue here on your website.

  63. Hello there! I could have sworn I’ve visited this web site before but after browsing through many of the posts I realized it’s new to me. Regardless, I’m definitely delighted I discovered it and I’ll be book-marking it and checking back regularly.

  64. After I originally commented I appear to have clicked on the -Notify me when new comments are added- checkbox and from now on every time a comment is added I recieve four emails with the same comment. Is there a way you can remove me from that service? Kudos.

  65. Hi, I do believe this is a great website. I stumbledupon it 😉 I’m going to return once again since i have book marked it. Money and freedom is the best way to change, may you be rich and continue to help other people.

  66. Next time I read a blog, I hope that it doesn’t disappoint me as much as this particular one. I mean, Yes, it was my choice to read, however I actually thought you’d have something helpful to talk about. All I hear is a bunch of moaning about something you could possibly fix if you were not too busy looking for attention.

  67. Hello, There’s no doubt that your site may be having browser compatibility problems. When I take a look at your blog in Safari, it looks fine but when opening in I.E., it has some overlapping issues. I just wanted to provide you with a quick heads up! Aside from that, fantastic site!

  68. Greetings! Very useful advice in this particular article! It is the little changes that will make the most significant changes. Thanks a lot for sharing!

  69. Hi, I do believe this is a great blog. I stumbledupon it 😉 I am going to come back yet again since i have book marked it. Money and freedom is the best way to change, may you be rich and continue to help other people.

  70. When I initially left a comment I seem to have clicked the -Notify me when new comments are added- checkbox and now every time a comment is added I get 4 emails with the same comment. Is there an easy method you are able to remove me from that service? Many thanks.

Leave a Comment

Your email address will not be published. Required fields are marked *

Log In
Create a free account or log in.

Gain access to limited free articles from Prometheus Research.

Already subscribed? Log in.