WEEKLY FED BALANCE SHEET REVIEW. A TALE OF TWO "LIQUIDITIES"
. Federal Reserve: "Factors Affecting Reserve Balances", June 27

- Fed's Treasuries holdings: $777.4bn (-$4.0bn)
- Other central banks' Treasuries holdings: $1,231.7bn (+$0.7bn) (*)
- Other central banks' agency securities: $743.6bn (+$7.5bn) (*)
- Mackinlay's Global Dollar Liquidity Measure: $2,752.6bn (+$4.2bn)

(*) Off-balance-sheet items.
agustin_mackinlay@yahoo.com
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All quiet on the "funding liquidity" front! Foreign central banks were active in the U.S. credit markets, buying more than $8bn in Treasury and agency securities. This was more than enough to compensate for the Federal Reserve's restrictive stance. All in all, our Global Dollar Liquidity measure gained a rather modest $4.2bn. However, the annual rate of growth, at 15.6%, is the highest since February 2005.

Not all is quiet on the "market liquidity" front, though. Credit spreads are still rising; share prices of financial "innovators" (GS, BX) are under pressure; volatility indices refuse to re-visit recent lows. This is a tale of two "liquidities": strong funding liquidity vs. weak market liquidity. What will give? With oil prices hovering around $70/barrel, the need to recycle petro-dollars will soon become pressing. In the meantime, range-bound equity markets make a lot of sense.