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Our brilliant readers are math people

Breaking down the components of our liquidity framework for global markets

Nik Bhatia

Aug 29

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Dear Readers,

Our new and evolving TBL Liquidity has fascinated you—we can tell by your follow up questions, inquiries, and suggestions. First and foremost, it demonstrates accuracy, bringing us to the theme of today’s letter: math. TBL Pros are math people, and nothing demonstrates this more than today’s reader-inspired breakdown. With so many constructs to liquidity—he easily and quickly rattles off fifteen—how do we weigh each? It also could be the most prized question we’ve ever received from a reader, considering it correctly pinpoints our 2024 research theme of multifaceted liquidity and simultaneously challenges the mathematical weighting of each seemingly relevant contributing metric. Bravo, Orfeo!

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TBL Liquidity: auditing the numbers

Let’s get right into Orfeo’s question:

How do you tackle the quantification and especially the aggregation of liquidity since there are so many moving parts — repo (MOVE, collateral price, haircut, repo motivation), bank lending (reserve level and change rate, interest rate, household and corporate balance sheet, credit risk, banks’ balance sheet), government activity (net treasury issuance, its composition, bid demand, RRP as buffer) just to name a few I can think of. We can monitor them separately but I find it difficult to synthesize them into one indicator...

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