Reserves Added $81.6bn. The Parking Lot Is Empty.

Reserve balances rose $81.6bn in the week to 7 October, to $3,029.7bn - a second consecutive weekly add. The Treasury's general account drained $98.2bn over the same window and then rebuilt $16.3bn off its 2 October low, reverse repo take-up is $0.3bn, and secured overnight money sits 3 basis points through the administered rate with no stress priced.

Two accounts sit at the centre of the US money system. The first is the Treasury's cash balance at the Federal Reserve, the general account it spends from and refills with tax receipts and bond sales. The second is reserves, the deposits banks hold at the Fed, which are the cash the system settles in. Money leaving the first arrives in the second; money building the first is pulled out of the second. For most of September the account was being built and reserves were falling. In the last 2 weeks the sign flipped. Reserve balances rose $81.6bn in the week to 7 October, a second consecutive weekly rise, while the account drained $98.2bn over the same window and then clawed back $16.3bn off its 2 October low. The facility that used to sit between the two accounts held $0.3bn. Ahead: where the reserve add came from, what an empty parking lot does to the next account build, and why nothing at the front end is priced for it.

Reserves added $81.6bn, a second weekly rise

Reserve balances stood at $3,029.7bn as of 7 October, from $2,948.1bn as of 30 September - a rise of $81.6bn.¹

The week before rose $17.9bn, from $2,930.2bn as of 23 September. That followed a fall of $83.6bn in the week to 23 September, from $3,013.8bn as of 16 September.¹

Two consecutive weekly adds after one large draw. The level is back above where it stood on 16 September.

Reserve balances are the deposits banks hold at the Federal Reserve. They are the cash the financial system settles in, and their level is set by what the rest of the Fed's balance sheet, and the Treasury's account, do around them. A rise is cash arriving in the banking system; a fall is cash leaving it.¹

The account paid for it, then rebuilt

The Treasury's general account closed at $885.8bn on 7 October and $887.5bn on 8 October, from $871.2bn on 2 October - a rebuild of $16.3bn over 6 sessions.²

Over the reserve week the account did the opposite. It fell from $984.0bn on 30 September to $885.8bn on 7 October, a draw of $98.2bn. Almost all of it came in the 3 sessions to 2 October, which took the account down $112.8bn.²

That draw is the other side of the reserve add in the first section. Money leaving the general account arrives in the banking system as reserves, and $98.2bn left over the same window that reserves rose $81.6bn.^1,2

The build since 2 October is small against the draw - $16.3bn against $112.8bn. The account has stopped falling. It has not refilled.²

The parking lot is empty

Take-up at the overnight reverse repo facility is $0.3bn as of 9 October, from $0.335bn as of 8 October and $1.0bn as of 5 October. The facility has peaked above $2tn.³

That facility is the parking lot between the two accounts. When it holds cash, a Treasury that builds its account can pull from money funds parked at the Fed instead of draining reserves. With $0.3bn in it, that option is gone.³

So the next general-account build has one place to come from, and it is reserves.³

The front end is not pricing it. Secured overnight money fixed at 3.87% on 8 October, against an administered rate of 3.90% - a spread of minus 3 basis points. Effective fed funds is 3.88%.⁴

The 3-month bill yields 4.25% on the 9 October close, 55 basis points below the 2yr.⁵

The corridor held at 44.0 basis points

2s10s closed at 44.0 basis points on 9 October: the 10yr at 5.24% and the 2yr at 4.80%.⁵

The 10yr cash note closed at 5.24%, down 7.1 basis points on the week. The breakeven is 2.33% (as of 9 Oct), from 2.36% (as of 2 Oct). That leaves a real 10yr yield of 2.91%, and 4 of the week's 7 basis points are real.⁶

Rate volatility is 98.47 (as of 9 Oct), down 8.82 on the week and at the 50.8th percentile of its 3yr range. Equity volatility is 15.21 (12 Oct), at the 8.3rd percentile.⁷

The composite headline is +0.261, regime NEUTRAL, on 5 of 5 sub-indices. Rates & Policy is the dominant sub-index at +1.537; Liquidity is the drag at -0.724. The composite is oriented so that a positive reading is stress.⁸

The bond market was closed on 12 October for Columbus Day. The last cash close is the 9 October one cited above.

Credit did not corroborate it

High-yield OAS is 3.15% (as of 8 Oct), from 3.10% (as of 2 Oct) and 3.24% (as of 1 Oct). Investment-grade OAS is 0.82% (as of 8 Oct), from 0.85% (as of 2 Oct).⁹

High yield has printed at or above 3.00% on every session since 1 October. The line this column set on 28 September is still fired.⁹

Cash credit firmed. HYG added $0.31 on the week to $77.29, JNK added $0.41 to $92.93, LQD added $0.75 to $102.58, and TLT added $0.94 to $78.05.¹⁰

The cash flow is quiet. Initial claims were 197,000 in the week to 3 October, from 199,000 in the week to 26 September. Continuing claims were 1,716,000 in the week to 26 September, from 1,699,000 in the week to 19 September. Core CPI is 3.71% year on year, for August.¹¹

A spread index above its line with the labour market flat is the normal order rather than a contradiction, because spreads widen before defaults arrive. It is not corroboration, and it is not a warning.

A $3,029.7bn reserve base and the BTC complex

Bitcoin is $83,667.58, up 0.45% over 5 sessions and 8.26% over thirty, at the 58.0th percentile of its range. Ether is $2,531.41, off $41.66 on the week.¹²

The Strategy common is $152.68 (as of 12 Oct), off $11.75 on the week - a fall of 7.1% - and at the 27.3rd percentile of its range. The preferreds held: STRF $103.445, up 0.045 on the week; STRK $75.51, off 1.34; STRC $99.88, up 0.40 and at the top of its range.¹³

The real 10yr is 2.91%, and that is the discount rate on every long-duration claim. Bitcoin added over the week against it. The common equity that owns the most bitcoin fell 7.1% on the same week, and the preferred that pays a cash coupon sat at the very top of its range.^6,13

The gap between the asset and the equity that holds it widened from the equity side. A reserve base that is rising is not the same thing as cheap duration, and the market is pricing the difference into the levered claim rather than the asset.

What would change the read

The first break is the drain resuming. Reserves falling back below $2,948.1bn on the 30 September basis, with the general account rebuilding, would say the September draw has started again.^1,2

The second is the front end. Secured overnight money printing persistently above the administered rate of 3.90% would turn the 3 basis point discount into a premium for cash, and that is the only line that matters at the very front.⁴

The third is the facility. Reverse repo take-up back above $50bn would mean the parking lot is filling again and there is a buffer under the reserve add.³

The fourth is credit. High-yield OAS back through 3.00% would take this from a plumbing story to a credit one, and the two take different hedges.⁹

Everything between here and those lines is a reserve base that added $81.6bn for a second week, a general account that stopped falling and has not refilled, and a parking lot holding $0.3bn. That is not a forecast. It is this week's print.

Notes

1. Reserve balances $3,029,659m as of 7 October, from $2,948,090m as of 30 September and $2,930,193m as of 23 September; $3,013,794m as of 16 September. Source: FRED WRESBAL.

2. Treasury General Account closing balances: $887,469m on 8 October, $885,783m on 7 October, $885,414m on 6 October, $883,335m on 5 October, $871,181m on 2 October and $984,046m on 30 September. Source: US Treasury Fiscal Data, Daily Treasury Statement, operating cash balance.

3. Overnight reverse repo take-up $0.300bn as of 9 October, from $0.335bn (8 Oct), $2.338bn (7 Oct), $0.414bn (6 Oct), $1.004bn (5 Oct) and $1.501bn (2 Oct). Peak take-up exceeded $2tn. Source: FRED RRPONTSYD.

4. SOFR 3.87% effective 8 October and EFFR 3.88%; IORB 3.90% - a SOFR-IORB spread of minus 3 basis points. Sources: Federal Reserve Bank of New York reference rates; FRED IORB.

5. Treasury par curve, 9 October close: 3-month 4.25%, 2yr 4.80%, 5yr 5.02%, 7yr 5.13%, 10yr 5.24%, 20yr 5.65%, 30yr 5.60%. 2s10s 44.0 basis points. Source: US Treasury daily par yield curve.

6. 10yr real yield 2.91% on a 10yr nominal of 5.24% and a breakeven of 2.33% (as of 9 Oct), against a 2.36% breakeven (as of 2 Oct); the 10yr is down 7.1 basis points on the week. Sources: FRED T10YIE; US Treasury.

7. MOVE 98.47 (9 Oct), -8.82 on the week, 50.8th percentile of its 3yr range; VIX 15.21 (12 Oct), -0.31 on the week, 8.3rd percentile. Source: exchange closes.

8. Composite headline +0.261, regime NEUTRAL, on 5 of 5 sub-indices. Rates & Policy +1.537; Liquidity -0.724; Credit & Stress -0.136; Growth & Inflation -0.093; Scarcity +0.720. Source: this site's composite, 13 October.

9. High-yield OAS 3.15% (as of 8 Oct), from 3.10% (2 Oct) and 3.24% (1 Oct); investment-grade OAS 0.82% (8 Oct), from 0.85% (2 Oct). Sources: FRED BAMLH0A0HYM2, BAMLC0A0CM.

10. 9 October closes: HYG 77.29 (+0.31 w/w), JNK 92.93 (+0.41), LQD 102.58 (+0.75), TLT 78.05 (+0.94). Source: exchange closes.

11. Initial claims 197,000 (week to 3 Oct), from 199,000 (week to 26 Sep); continuing claims 1,716,000 (week to 26 Sep), from 1,699,000 (week to 19 Sep); core CPI 3.71% year on year (for August). Sources: FRED ICSA, CCSA, CPIAUCSL.

12. Bitcoin $83,667.58, +0.45% over 5 sessions and +8.26% over thirty, 58.0th percentile of its range; Ether $2,531.41, -$41.66 on the week. Source: spot closes, 13 October.

13. MSTR $152.68 (as of 12 Oct), -$11.75 on the week, 27.3rd percentile of its range; STRF $103.445 (+0.045 on the week), STRK $75.51 (-1.34), STRC $99.88 (+0.40, 100th percentile). Source: exchange closes.

14. Invalidation levels: reserve balances below $2,948.1bn on the 30 September basis; SOFR persistently above IORB at 3.90%; RRP take-up above $50bn; high-yield OAS above 3.00%.