Stage II · The Mechanics · STEP 6

Liquidity and the plumbing

Reserves and the Treasury's own cash balance: the quantity of money at the margin. This is where funding squeezes start, weeks before they reach the headlines.

Why this matters

The price of money and the quantity of money are two different things. Rates tell you the price; reserves, the Treasury General Account and the reverse repo facility tell you the quantity at the margin — the money actually available to settle the system each day.

This is where a squeeze is born. When the Treasury rebuilds its cash balance, it drains reserves from the banking system; when the RRP buffer empties, reserves carry the load alone. Funding pressure shows up in repo first, long before it reaches equity indices that everyone watches.

It is also the least glamorous and therefore the least crowded corner of macro. Reading reserve balances is a genuine edge because it is structural: you see the constraint forming while the tape is still calm, which is exactly when it pays to have looked.

Watch

Eurodollar University (Jeff Snider) ↗
The plumbing of the dollar system, in depth. Snider knows the machinery better than almost anyone on video.
The Macro Compass (Alfonso Peccatiello) ↗
Ex-head of rates at ING. The cleanest practical bridge from liquidity and the curve to a portfolio decision.

Read — our own explanation

Verify at the source

BEFORE YOU MOVE ON

You can say what happens to bank reserves when the Treasury rebuilds its cash balance, and why that matters to funding at the margin.

← Step 5: The yield curve · Step 7: Inflation →