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RT @DiMartinoBooth: If you don’t follow @bondstrategist and @onechancefreedm you’re doing yourself a disservice.
When Reserves Lie: The Chart Everyone Misreads
Before 2008, we had a classic scarce reserve system. Banks ran on a small pool of reserves to clear payments and meet requirements. The Fed nudged that pool up or down to steer the overnight rate. Banks didn’t need reserves to make a loan, they created deposits when they lent but once those deposits moved through the system, they needed reserves to settle with other banks and stay solvent.
The real action, though, was always in credit risk and the yield curve. The 2 year, 10 year, mortgage rates reflected the market’s view on future growth, inflation, and Treasury supply, not the level of reserves. M2 could climb for decades because banks were willing to lend and balance sheets weren’t suffocated by post crisis regulation. Reserves were the small amount of real money keeping the plumbing clearing in the background, not the driver of broad money.
The Post GFC regime shift
After 2008, the architecture flipped. QE and the floor system turned reserves into a ring fenced asset for a narrow club of big banks. Trillions now sit on G-SIB balance sheets, earning interest at the Fed, helping them meet LCR/SLR/HQLA requirements, and cycling through the RRP/TGA machinery. They’re not there to be multiplied into new loans like the textbook money multiplier suggests.
Meanwhile, more credit intermediation migrated to non banks and global shadow systems that don’t have reserve access at all. You can 75x reserves and only see M2 roughly 3x if the real constraints are balance sheet capacity, capital rules, and risk appetite not “is another dollar of base money available?”
Collateral, the curve, and who really sets rates
In this world, Treasuries do more of the money work than reserves. They can be pledged, rehypothecated, and used by almost every balance sheet. Reserves can’t. The real scarcity isn’t a Fed liability, it’s clean collateral and the ability to warehouse it.
The Fed truly controls one thing: the overnight rate. Everything beyond that like the 2 year, the 10 year, mortgages…trades on expectations for future short rates, inflation, and heavy issuance. QE lets the Fed lean on term premia by taking duration out of the market, but it doesn’t give them lasting control of the long end. The market still gets a vote, and when deficits explode or inflation surprises, the curve can move sharply against the Fed.
QE is just an asset swap is right on narrow accounting…swapping a bond for a reserve doesn’t create new net claims. But once you add fiscal into the picture, the Treasury is issuing new net assets, and QE is changing who holds that duration and at what yield. That matters for how the curve is priced and how financial conditions evolve.
Why it feels like liquidity everywhere and nowhere
Put it together and you get a strange picture where FRED shows trillions in reserves, yet we still see repo spikes, SOFR scares, and collateral shortages. Funding can feel tight even when base money looks huge because the plumbing is misaligned. Reserves are concentrated at a few big banks, encumbered by capital rules and politics. Non banks do much of the lending and liquidity transformation but must work through bills, repo, and derivatives instead of tapping the Fed.
The system oscillates between too much and too little at the same time. You can have a glut of reserves sitting inert while dealers and non banks scramble for balance sheet room and collateral. The Fed can cut overnight rates, but if the market doesn’t buy the growth or inflation story or if issuance overwhelms dealers..the long end can tighten conditions right back up.
So just add more reserves misses the point. The real question is how reserves and Treasuries move through the system, under which constraints, and how that shapes the curve the market sets. Change those channels…capital treatment of sovereign deb[...]
RT @DiMartinoBooth: If you don’t follow @bondstrategist and @onechancefreedm you’re doing yourself a disservice.
When Reserves Lie: The Chart Everyone Misreads
Before 2008, we had a classic scarce reserve system. Banks ran on a small pool of reserves to clear payments and meet requirements. The Fed nudged that pool up or down to steer the overnight rate. Banks didn’t need reserves to make a loan, they created deposits when they lent but once those deposits moved through the system, they needed reserves to settle with other banks and stay solvent.
The real action, though, was always in credit risk and the yield curve. The 2 year, 10 year, mortgage rates reflected the market’s view on future growth, inflation, and Treasury supply, not the level of reserves. M2 could climb for decades because banks were willing to lend and balance sheets weren’t suffocated by post crisis regulation. Reserves were the small amount of real money keeping the plumbing clearing in the background, not the driver of broad money.
The Post GFC regime shift
After 2008, the architecture flipped. QE and the floor system turned reserves into a ring fenced asset for a narrow club of big banks. Trillions now sit on G-SIB balance sheets, earning interest at the Fed, helping them meet LCR/SLR/HQLA requirements, and cycling through the RRP/TGA machinery. They’re not there to be multiplied into new loans like the textbook money multiplier suggests.
Meanwhile, more credit intermediation migrated to non banks and global shadow systems that don’t have reserve access at all. You can 75x reserves and only see M2 roughly 3x if the real constraints are balance sheet capacity, capital rules, and risk appetite not “is another dollar of base money available?”
Collateral, the curve, and who really sets rates
In this world, Treasuries do more of the money work than reserves. They can be pledged, rehypothecated, and used by almost every balance sheet. Reserves can’t. The real scarcity isn’t a Fed liability, it’s clean collateral and the ability to warehouse it.
The Fed truly controls one thing: the overnight rate. Everything beyond that like the 2 year, the 10 year, mortgages…trades on expectations for future short rates, inflation, and heavy issuance. QE lets the Fed lean on term premia by taking duration out of the market, but it doesn’t give them lasting control of the long end. The market still gets a vote, and when deficits explode or inflation surprises, the curve can move sharply against the Fed.
QE is just an asset swap is right on narrow accounting…swapping a bond for a reserve doesn’t create new net claims. But once you add fiscal into the picture, the Treasury is issuing new net assets, and QE is changing who holds that duration and at what yield. That matters for how the curve is priced and how financial conditions evolve.
Why it feels like liquidity everywhere and nowhere
Put it together and you get a strange picture where FRED shows trillions in reserves, yet we still see repo spikes, SOFR scares, and collateral shortages. Funding can feel tight even when base money looks huge because the plumbing is misaligned. Reserves are concentrated at a few big banks, encumbered by capital rules and politics. Non banks do much of the lending and liquidity transformation but must work through bills, repo, and derivatives instead of tapping the Fed.
The system oscillates between too much and too little at the same time. You can have a glut of reserves sitting inert while dealers and non banks scramble for balance sheet room and collateral. The Fed can cut overnight rates, but if the market doesn’t buy the growth or inflation story or if issuance overwhelms dealers..the long end can tighten conditions right back up.
So just add more reserves misses the point. The real question is how reserves and Treasuries move through the system, under which constraints, and how that shapes the curve the market sets. Change those channels…capital treatment of sovereign deb[...]
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EndGame Macro RT @DiMartinoBooth: If you don’t follow @bondstrategist and @onechancefreedm you’re doing yourself a disservice. When Reserves Lie: The Chart Everyone Misreads Before 2008, we had a classic scarce reserve system. Banks ran on a small pool of…
t, non bank access, floor system design and the whole machine behaves differently without adding a single new dollar. - EndGame Macro tweet
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Quiver Quantitative
Check this out.
A new Polymarket account has placed a massive bet on Google, $GOOGL, releasing Gemini 3.0 in November.
They'll win $91,000 if correct. https://t.co/3G0RCYc0pB
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Check this out.
A new Polymarket account has placed a massive bet on Google, $GOOGL, releasing Gemini 3.0 in November.
They'll win $91,000 if correct. https://t.co/3G0RCYc0pB
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Quiver Quantitative
A PAC called "MAGA KY" has now spent over $1M running ads against Thomas Massie.
Here are the largest donors: https://t.co/YhGmIf73TW
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A PAC called "MAGA KY" has now spent over $1M running ads against Thomas Massie.
Here are the largest donors: https://t.co/YhGmIf73TW
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EndGame Macro
What this really shows is how sentiment toward long term Treasuries has swung over the past few years. In 2021, money was pouring in because bonds still played their old role, a steady hedge with respectable returns. Then 2022 happened. The fastest Fed hiking cycle in decades crushed duration, and investors bailed. That dip in the middle is basically everyone saying that they were done with long bonds.
But once you get past that washout, you can see the mood shift. As inflation cooled and yields stayed high, the math started to look too good to ignore. 4% to 5% on safe assets is hard to beat, especially when the equity market feels top heavy and growth looks less certain. Pension funds, insurers, and even retail started coming back because locking in those yields feels like buying time.
There’s also a supply story under the hood. Treasury has leaned more on bills this year, which quietly took some pressure off the long end. Less long duration issuance plus better valuations is enough to pull people back in, even with the political noise and deficit headlines.
So the chart isn’t just about inflows. It’s about a market that spent a year swearing off duration, only to realize it needed it again. And once that realization sets in, the buying tends to build on itself…slowly at first, and then all at once.
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What this really shows is how sentiment toward long term Treasuries has swung over the past few years. In 2021, money was pouring in because bonds still played their old role, a steady hedge with respectable returns. Then 2022 happened. The fastest Fed hiking cycle in decades crushed duration, and investors bailed. That dip in the middle is basically everyone saying that they were done with long bonds.
But once you get past that washout, you can see the mood shift. As inflation cooled and yields stayed high, the math started to look too good to ignore. 4% to 5% on safe assets is hard to beat, especially when the equity market feels top heavy and growth looks less certain. Pension funds, insurers, and even retail started coming back because locking in those yields feels like buying time.
There’s also a supply story under the hood. Treasury has leaned more on bills this year, which quietly took some pressure off the long end. Less long duration issuance plus better valuations is enough to pull people back in, even with the political noise and deficit headlines.
So the chart isn’t just about inflows. It’s about a market that spent a year swearing off duration, only to realize it needed it again. And once that realization sets in, the buying tends to build on itself…slowly at first, and then all at once.
Treasury market is a top performing DM market despite big deficits, political uncertainty, and threats to Fed independence. This post reviews the sources of investor demand and shifts by Treasury that supported the market. It looks like it can continue.
https://t.co/NqPBikHdFB tweet
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EndGame Macro
The Refi Freeze: Where the First Cracks in the Consumer Are Starting to Show
The blue line…refi applications is basically on the floor. That’s not a mystery. Anyone who could lock in a cheap mortgage already did it in 2020–21. Everyone else is staring at today’s rates and saying, “Why bother?” So the only people still trying to refinance now are the ones who need to, not the ones who want to.
The red line…the rejection rate tells the real story. Almost half of those applications are getting denied. That’s not normal. And it’s not happening because people suddenly forgot how to fill out forms. It’s happening because the folks applying are the ones under financial pressure, the ones whose credit profiles have slipped, the ones hoping a refi will buy them breathing room. In other words, the marginal borrower.
Banks Are Quietly Tightening the Screws
On the lender side, the mood has changed too. Funding costs are higher, regulators are tougher, and delinquencies are creeping up in other parts of consumer credit. When banks see that mix, they don’t just raise rates, they pull back. They tighten standards. They tell borderline applicants “not right now,” even if those people would’ve been approved two or three years ago.
Put those two forces together and you get exactly what you’re seeing:
•hardly anyone is applying,
•and the ones who do are getting shut out at record levels.
The Bigger Message
The headline number is just the surface. The deeper message is that the credit channel is starting to bite. Not broadly, not dramatically but in the exact places where household stress tends to show up first. These are the people who eventually show up in delinquency data, in forced sales, in consumer spending cuts. And when enough of that pressure builds, it spills over into the wider economy.
You don’t need a crisis to feel the squeeze. Sometimes it starts with charts like this…quiet, early, and concentrated at the edges.
tweet
The Refi Freeze: Where the First Cracks in the Consumer Are Starting to Show
The blue line…refi applications is basically on the floor. That’s not a mystery. Anyone who could lock in a cheap mortgage already did it in 2020–21. Everyone else is staring at today’s rates and saying, “Why bother?” So the only people still trying to refinance now are the ones who need to, not the ones who want to.
The red line…the rejection rate tells the real story. Almost half of those applications are getting denied. That’s not normal. And it’s not happening because people suddenly forgot how to fill out forms. It’s happening because the folks applying are the ones under financial pressure, the ones whose credit profiles have slipped, the ones hoping a refi will buy them breathing room. In other words, the marginal borrower.
Banks Are Quietly Tightening the Screws
On the lender side, the mood has changed too. Funding costs are higher, regulators are tougher, and delinquencies are creeping up in other parts of consumer credit. When banks see that mix, they don’t just raise rates, they pull back. They tighten standards. They tell borderline applicants “not right now,” even if those people would’ve been approved two or three years ago.
Put those two forces together and you get exactly what you’re seeing:
•hardly anyone is applying,
•and the ones who do are getting shut out at record levels.
The Bigger Message
The headline number is just the surface. The deeper message is that the credit channel is starting to bite. Not broadly, not dramatically but in the exact places where household stress tends to show up first. These are the people who eventually show up in delinquency data, in forced sales, in consumer spending cuts. And when enough of that pressure builds, it spills over into the wider economy.
You don’t need a crisis to feel the squeeze. Sometimes it starts with charts like this…quiet, early, and concentrated at the edges.
Hot off @NYFedResearch SCE presses:
"Overall rejection rate for any kind of credit over past 12 months increased to 24.8% from June's 23.1% a new series high. Rejection rates increased for home loans, car loans & mortgage refinancing"
On refinancing, rejections hit record 45.7% tweet
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EndGame Macro
Japan’s Great Repricing: The Moment the World’s Safest Bond Market Finally Woke Up
This is what happens when a country that spent 30 years in a deflationary deep freeze suddenly has to live in a world with real inflation, higher global rates, and a weak currency. For decades, the long end of Japan’s curve barely moved. You could go years without seeing a meaningful shift. Now the 20 year is ripping higher because the market is finally treating Japan like a normal developed economy again…one with large deficits, an aging population, and a currency that keeps sliding.
Why It’s Happening
Inflation may not be runaway, but it’s been above the BOJ’s target long enough that the old playbook doesn’t work. The BOJ already scrapped negative rates, loosened yield curve control, and hinted at more normalization. Once you crack the door open, investors stop anchoring to 0.5% or 1% ceilings. They start asking what Japanese rates should look like if the country is going to run stimulus packages, import more inflation through the yen, and rely heavily on debt to support households.
Add in the ¥17 trillion stimulus package the government is preparing…tax cuts, subsidies, support for households and bond investors immediately see more supply and more inflation risk. That combination almost always pushes the long end higher.
What It Signals Going Forward
This move in JGBs is the market telling us that Japan’s multi decade regime of safe, static, predictable yields is fading. If Japanese savers can suddenly earn 2–3% at home, some of the money that used to flow into U.S. Treasuries, European bonds, or EM carry trades doesn’t need to go abroad. That’s a quiet shift, but it matters for global liquidity…Japan has been one of the world’s biggest sources of external capital for years.
Domestically, higher yields eventually feed back into Japan’s government budget. With that much debt outstanding, every incremental rise in long rates tightens the screws. At some point the BOJ will have to decide how much of this normalization it’s actually willing to tolerate.
So the chart is the bond market rewriting Japan’s story. A country that lived on deflation, cheap money, and a strong yen now has inflation pressure, stimulus spending, and a currency at a 35 year low. The market is simply adjusting to that reality.
tweet
Japan’s Great Repricing: The Moment the World’s Safest Bond Market Finally Woke Up
This is what happens when a country that spent 30 years in a deflationary deep freeze suddenly has to live in a world with real inflation, higher global rates, and a weak currency. For decades, the long end of Japan’s curve barely moved. You could go years without seeing a meaningful shift. Now the 20 year is ripping higher because the market is finally treating Japan like a normal developed economy again…one with large deficits, an aging population, and a currency that keeps sliding.
Why It’s Happening
Inflation may not be runaway, but it’s been above the BOJ’s target long enough that the old playbook doesn’t work. The BOJ already scrapped negative rates, loosened yield curve control, and hinted at more normalization. Once you crack the door open, investors stop anchoring to 0.5% or 1% ceilings. They start asking what Japanese rates should look like if the country is going to run stimulus packages, import more inflation through the yen, and rely heavily on debt to support households.
Add in the ¥17 trillion stimulus package the government is preparing…tax cuts, subsidies, support for households and bond investors immediately see more supply and more inflation risk. That combination almost always pushes the long end higher.
What It Signals Going Forward
This move in JGBs is the market telling us that Japan’s multi decade regime of safe, static, predictable yields is fading. If Japanese savers can suddenly earn 2–3% at home, some of the money that used to flow into U.S. Treasuries, European bonds, or EM carry trades doesn’t need to go abroad. That’s a quiet shift, but it matters for global liquidity…Japan has been one of the world’s biggest sources of external capital for years.
Domestically, higher yields eventually feed back into Japan’s government budget. With that much debt outstanding, every incremental rise in long rates tightens the screws. At some point the BOJ will have to decide how much of this normalization it’s actually willing to tolerate.
So the chart is the bond market rewriting Japan’s story. A country that lived on deflation, cheap money, and a strong yen now has inflation pressure, stimulus spending, and a currency at a 35 year low. The market is simply adjusting to that reality.
JUST IN 🚨: Japan's 20-Year Bond Yield jumps to highest level since 1999 📈 tweet