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Reflections #37 - TGA refill accelerates with bank reserves joining the drain

The refill of the TGA accelerates as expected with the latest weekly number showing an increase of USD157bn to a level of USD292bn as of June 21. The target for the end of June is around USD450bn which leaves around USD160bn for the remainder of the month to be refilled.

As discussed in an earlier comment, important for risk markets is where the liquidity is coming from to refill the TGA. While a drain of funds from the RRP program does not constitute a market liquidity drain, a fall in bank reserves does.

Latest numbers now show that bank reserves (green), which did not really join the drain in the weeks before, have now seen a sharp reduction. As most of the 2023 rally in risk asset was supported by rising bank reserves/liquidity, the reverse of the trend should be a warning signal to risk takers especially in the context of the recent softening in economic data.


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