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Central Markets by Robert Lloyd, CFA

The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the  information cannot be guaranteed. All opinions and outlooks are subject to change.

  • Robert Lloyd, CFA

The Fed Is Sucking Up Liquidity!

Many of you know that the Federal Reserve has a policy called quantitative easing (QE) where they buy bonds and give cash to the banking system. They are currently buying $120 billion/month to support the financial system.

But, did you know they also take cash (liquidity) OUT of the market also? They have a tool called the "repo window" that allows banks and money market funds to park unwanted cash to the Fed overnight. Recently, overnight repo has exceeded $500 billion. What do you think is going on?

My own view is that this recent spike is a significant change in investor behavior. There appears to be a shortage of short-term debt securities with yields high enough to makes sense buying. This shortage is probably associated with the Treasury department’s requirement to lower its cash balance (the Treasury General Account, or TGA). The “repo” rate offered by the Fed may be the best bid for excess cash in the market. But still, are investors raising cash and parking it someplace safe? Are long term bonds and stocks not a good destination for this cash?

Apparently, not.

Robert Lloyd, CFA®

Chief Investment Officer

Lloyds Intrepid Wealth Management

Lloyds Intrepid LLC is doing business as Lloyds Intrepid Wealth Management. Lloyds Intrepid LLC offers investment advisory services in the State of Texas where registered and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Lloyds Intrepid LLC and its advisers do not provide legal, tax or accounting advice. Lloyds Intrepid LLC formulates retirement plans, investment strategies, portfolio construction and investment due diligence for clients with signed investment advisory agreements with us. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All opinions and outlooks are subject to change.

© 2021 Lloyds Intrepid LLC

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