Convex Net Liquidity Index (CNLI)
The actual amount of Fed liquidity flowing into financial markets — adjusted for the drains that headline balance sheet numbers miss.
Current Reading
Ample liquidity flowing into markets. Historically associated with risk-asset tailwinds and multiple expansion.
Last updated: Apr 5, 2026
Historical Chart
Methodology
The Federal Reserve's balance sheet is widely cited as the key driver of financial market liquidity. But the headline number is misleading. Two massive liquidity drains — the Reverse Repo Facility (RRP) and the Treasury General Account (TGA) — sit between the Fed's balance sheet and actual market liquidity. Money parked in these facilities is cash that has been created by the Fed but is not circulating in markets.
This distinction was inconsequential before 2021. The RRP facility held near-zero balances for decades. But starting in 2021, money market funds began parking over $2.5 trillion in the RRP — more than the entire QT program had drained from the balance sheet. Meanwhile, the Treasury's cash balance (TGA) swung by hundreds of billions as fiscal spending patterns shifted. Ignoring these drains meant that traditional balance sheet analysis was overstating market liquidity by trillions of dollars during 2021-2023.
CNLI solves this by computing: Fed Balance Sheet minus RRP minus TGA. This gives the actual liquidity flowing into financial markets — the number that matters for asset prices.
Components
Total assets on the Fed's balance sheet, including Treasuries, MBS, and emergency lending facilities. Reported weekly in millions.
This is the starting point — the total amount of base money the Fed has created through asset purchases (QE) and lending.
Overnight reverse repo agreements. Cash that money market funds and banks park at the Fed overnight, earning the overnight rate. Effectively removes liquidity from markets.
RRP balances peaked at $2.55 trillion in December 2022. This was liquidity that existed on the Fed's balance sheet but was not flowing into markets — it was parked at the Fed earning risk-free returns.
The US Treasury's checking account at the Fed. Increases when the Treasury issues debt and collects taxes; decreases when the government spends.
When the Treasury builds its cash balance, it drains liquidity from the banking system. When it spends (depletes TGA), liquidity floods back. TGA swings of $500B+ have meaningful market impact.
Formula
CNLI = WALCL - (RRPONTSYD × 1000) - WTREGEN. All values are normalized to millions of US dollars. RRPONTSYD is multiplied by 1000 because FRED reports it in billions while WALCL and WTREGEN are in millions.
How to Read CNLI
Ample liquidity flowing into markets. Historically associated with risk-asset tailwinds and multiple expansion.
Neutral liquidity backdrop. Neither a tailwind nor a headwind for markets.
Liquidity headwind. Associated with tighter financial conditions and risk-asset underperformance.
What Makes This Different
- -Unlike the raw Fed balance sheet, CNLI accounts for the trillions parked in the RRP facility — the single largest liquidity distortion of the 2021-2024 era.
- -CNLI captured the paradox of 2023: the Fed was shrinking its balance sheet (QT), but RRP was draining even faster, resulting in net liquidity increasing — exactly what drove the equity rally.
- -By including TGA, CNLI captures the liquidity impact of fiscal spending patterns — a factor that many liquidity frameworks ignore.
Historical Performance
COVID QE Explosion
March 2020 - June 2020When the Fed launched unlimited QE in March 2020, the balance sheet expanded from $4.2T to $7.1T in three months. CNLI tracked this precisely — rising from $3.7T to $5.8T — with the difference accounted for by the Treasury building a massive cash buffer ($1.6T in TGA) for pandemic spending. The CNLI surge coincided perfectly with the equity market recovery from the March lows.
| Date | Moment | CNLI |
|---|---|---|
| 2020-02-19 | Pre-crisis baseline | $3.74TModerate |
| 2020-03-23 | Market trough / QE launch | $4.28TModerate |
| 2020-06-01 | Liquidity surge | $5.79TElevated |
Peak Liquidity Era
2021By late 2021, the Fed balance sheet reached $8.76T. But CNLI told a more nuanced story: with RRP absorbing $1.5T+ and TGA varying, net liquidity peaked around $7T rather than the headline $8.76T. This correction matters — the RRP was absorbing excess reserves that would have otherwise flooded into risk assets. CNLI correctly showed that actual market liquidity was elevated but not as extreme as the headline suggested.
| Date | Moment | CNLI |
|---|---|---|
| 2021-06-01 | RRP crosses $500B | $6.64TElevated |
| 2021-12-31 | Peak balance sheet era | $6.64TElevated |
2022-2023: The Hidden Liquidity Paradox
January 2022 - December 2023This period is where CNLI proved most valuable. The Fed began QT in June 2022, shrinking its balance sheet by $95B/month. Headlines proclaimed "liquidity is being drained." But CNLI showed the real story: RRP balances drained from $2.55T (December 2022) toward zero throughout 2023, pumping liquidity back into markets faster than QT was removing it. Net liquidity actually increased during parts of 2023 even as the balance sheet shrank — explaining the powerful equity rally that confounded bearish consensus.
| Date | Moment | CNLI |
|---|---|---|
| 2022-06-15 | QT begins | $6.11TElevated |
| 2022-12-30 | RRP peaks at $2.55T | $5.57TElevated |
| 2023-06-01 | RRP draining, liquidity rising | $6.18TElevated |
| 2023-12-31 | CNLI higher despite QT | $5.96TElevated |
SVB Banking Crisis
March 2023When Silicon Valley Bank collapsed, the Fed launched emergency lending facilities (BTFP), injecting hundreds of billions into the banking system. CNLI captured this immediately — jumping from $8.0T to $8.4T in one week as the Fed balance sheet expanded to backstop the banking system. This liquidity injection helped arrest the selloff and supported the recovery.
| Date | Moment | CNLI |
|---|---|---|
| 2023-03-08 | SVB stock crash | $5.82TElevated |
| 2023-03-13 | SVB seized / BTFP launched | $5.88TElevated |
| 2023-03-20 | CNLI jump visible | $6.31TElevated |
Limitations
- -CNLI does not account for private credit creation, which can independently expand or contract effective liquidity.
- -The RRP component can introduce lag — when money exits RRP, it may flow to Treasury bills rather than risk assets, delaying the liquidity impact.
- -International central bank liquidity (ECB, BOJ, PBOC) also affects US markets through cross-border capital flows but is not captured here.
- -WALCL is reported weekly (Wednesday snapshots), so daily CNLI values between updates use the most recent available reading.
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This indicator is generated from live economic data and is for informational purposes only. It does not constitute financial advice. Past performance does not guarantee future results.