Macro liquidity monitoring and risk early-warning system. By tracking 4 core indicators (Fed Net Liquidity, SOFR Overnight Financing Rate, MOVE Treasury Volatility Index, Yen Carry Trade Signals), it provides real-time assessment of liquidity conditions in the global financial system, outputting liquidity ratings and risk response recommendations. When users mention topics such as liquidity, Fed balance sheet reduction (QT), TGA account, reverse repo ON RRP, SOFR rate, MOVE index, Treasury volatility, yen carry trade, USDJPY and interest rate differentials, impact of QT on markets, whether money is tight, liquidity inflection points, tightening financial conditions, etc., this skill should be used. Even if users ask broadly "how is liquidity right now" or "is the Fed draining or injecting liquidity," this skill should be triggered to provide a structured analytical framework.
This skill helps you track the most critical "water level" in the global financial system — liquidity. Liquidity can be simply understood as how much money is flowing in the market. When there is plenty of money (ample liquidity), asset prices tend to rise; when money is scarce (tight liquidity), asset prices come under pressure. These 4 indicators cover the complete chain from the Fed's "main faucet" to the market's "end of the pipeline."
Use this skill when users ask the following types of questions:
For each indicator, use web_search to find the latest data, then evaluate according to the criteria below.
What it is: This is the core formula for measuring how much money the Fed has actually injected into the market:
Net Liquidity = Fed Total Assets - TGA Balance - ON RRP Balance
Breaking down each component:
Fed Total Assets (Fed Balance Sheet): The total amount of Treasuries and MBS (Mortgage-Backed Securities) held by the Fed. When the Fed "prints money" to buy bonds → total assets increase → cash is injected into the market. Conversely, "quantitative tightening" (QT) means not reinvesting maturing bonds → total assets decrease → cash is drained from the market. Think of it as "the size of the total water pool."
TGA (Treasury General Account): The U.S. Treasury's "bank account" at the Fed. Money received from Treasury bond issuance is deposited here. TGA balance rising = money flowing from the market into the government's account (draining); TGA balance falling = the government is spending, money flowing back to the market (injecting). Think of it as "the government's reservoir — saving is draining, spending is injecting."
ON RRP (Overnight Reverse Repurchase): A facility where money market funds and other institutions "park" excess cash at the Fed to earn interest. High ON RRP balance = large amounts of cash sitting at the Fed not entering the market (money is "frozen"); Low ON RRP balance = that money is flowing back into the market. Think of it as "the Fed's parking lot — money parked here is not circulating."
Therefore: The larger the Fed's total assets, the lower the TGA, and the lower the ON RRP → the higher the net liquidity → the more favorable for risk assets.
Search keywords: Federal Reserve balance sheet total assets + Treasury TGA balance + ON RRP balance or search directly for Fed net liquidity
Alert criteria:
Key takeaway: Net liquidity has a strong correlation with risk assets such as the S&P 500 and Bitcoin. The 2022 selloff was largely driven by declining net liquidity. Monitoring weekly trend changes is more important than absolute values.
What it is: The interest rate at which Wall Street institutions "borrow money overnight" from each other. When Bank A needs cash today to settle accounts, it pledges Treasuries as collateral and borrows from Bank B for one day, repaying the next day. This borrowing rate is SOFR.
SOFR has replaced the scandal-plagued LIBOR (London Interbank Offered Rate) and become one of the most important benchmark rates globally. Trillions of dollars in loans, derivatives, and mortgages are priced based on SOFR.
An abnormally elevated SOFR means: Short-term funding in the market is in short supply, and institutions are "scrambling for cash." This is the most direct signal of liquidity stress.
Search keywords: SOFR rate today or secured overnight financing rate latest
Alert criteria:
Additional note: bp (basis point) = 0.01%. 10bp = 0.1%. So if the Fed Funds Rate upper bound is 5.50%, SOFR exceeding 5.60% warrants caution.
Key takeaway: A sudden spike in SOFR is often a precursor to a liquidity crisis. In September 2019, SOFR surged overnight from 2% to above 5%, forcing the Fed to inject emergency liquidity. Small daily fluctuations are not concerning, but abnormal deviations require close attention.
What it is: An indicator measuring U.S. Treasury market volatility, similar to the stock market's VIX (fear index), but for the bond market. Compiled by Bank of America Merrill Lynch, it is calculated based on implied volatility of U.S. Treasury options.
Why does bond volatility matter? Because U.S. Treasuries are the "pricing anchor" of the global financial system — the valuation of virtually all other assets is built on Treasury yields. When the Treasury market experiences violent swings, it signals extreme uncertainty about the interest rate outlook, and this uncertainty transmits to all asset classes.
Search keywords: MOVE index today or MOVE bond volatility index
Alert criteria:
Historical reference:
Key takeaway: MOVE > 130 is an empirical threshold — when bond market volatility reaches this level, institutional investors are often forced to reduce risk exposure (because Treasuries themselves are no longer safe), leading to selloffs in stocks, crypto, and other risk assets.
What it is: The Yen Carry Trade is the world's largest "borrow in low-rate currency, invest in high-yield assets" strategy. The principle is simple:
This strategy has two key monitoring variables:
USDJPY (USD/JPY exchange rate): Higher rate = weaker yen = more active carry trade. If the yen suddenly strengthens (USDJPY drops rapidly), carry traders are forced to unwind → sell USD assets → triggering a chain of selloffs.
US2Y - JP2Y spread (U.S.-Japan 2-year Treasury spread): This is the "profit source" of the carry trade. The wider the spread, the more profitable the carry, attracting more capital. When the spread narrows, carry attractiveness declines, potentially triggering unwinds.
Search keywords: USDJPY today + US 2 year treasury yield + Japan 2 year bond yield or yen carry trade risk
Alert criteria:
Historical case study:
Key takeaway: The scale of the yen carry trade is estimated at several trillion dollars. When this "hidden leverage" unwinds en masse, the impact far exceeds expectations. Monitoring Bank of Japan policy moves (whether it will raise rates or adjust YCC) is key to anticipating this risk.
Tally the status of all 4 indicators:
| Alert Count | Liquidity Rating | Recommended Response |
|---|---|---|
| 0 alerts | 🟢 Ample | Friendly liquidity environment, suitable for holding risk assets |
| 1 alert | 🟡 Slightly Tight | Stay vigilant, check stop-loss levels, moderately reduce leverage |
| 2 alerts | 🟠 Tight | Reduce risk exposure by 10-20%, increase cash allocation |
| 3 alerts | 🔴 Dangerous | Significantly reduce risk asset positions, shift to defensive (cash, short-term Treasuries) |
| 4 alerts | 🔴🔴 Crisis Level | Minimize risk exposure, hedge tail risks |
Use the following structured template for analysis output:
# 💧 Macro Liquidity Monitoring Report
**Date**: [current date]
## 📊 Indicator Dashboard
| Indicator | Current Value | Status | Signal |
|-----------|--------------|--------|--------|
| Net Liquidity | [value] (Total Assets - TGA - RRP) | [Normal/Watch/Alert] | [brief explanation] |
| SOFR | [rate]% | [Normal/Watch/Alert] | [brief explanation] |
| MOVE Index | [value] | [Normal/Watch/Alert] | [brief explanation] |
| USDJPY / U.S.-Japan Spread | [exchange rate] / [spread]bp | [Normal/Watch/Alert] | [brief explanation] |
### Net Liquidity Breakdown
- Fed Total Assets: $[X] trillion
- TGA Balance: $[X] billion
- ON RRP Balance: $[X] billion
- **Net Liquidity**: $[X] trillion (weekly change: [+/-X]%)
## 🚦 Overall Rating
**Liquidity Status**: [Ample / Slightly Tight / Tight / Dangerous / Crisis Level]
**Number of Alerts**: [X] / 4
## 💼 Response Recommendations
[Provide specific recommendations based on the rating, differentiated by asset class:]
- U.S. stock position recommendations
- Crypto asset position recommendations
- Whether hedging is needed and recommended hedging tools
## 🔮 Forward-Looking Observations
[Based on search results, highlight events in the next 1-4 weeks that may impact liquidity:]
- Fed policy meeting / QT plan adjustments
- Treasury issuance plans (impact on TGA)
- Bank of Japan policy meetings
- Large-scale Treasury maturities/auctions
## ⚠️ Disclaimers
- Liquidity indicators are better suited for medium-term (weekly/monthly) trend assessment
- A single indicator briefly showing anomalies does not constitute an action signal; comprehensive assessment is needed
- Net liquidity data typically has a 1-2 day lag
- The macro environment is complex; liquidity is only one of many factors affecting asset prices
- The above analysis is for reference only and does not constitute investment advice
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