December 5, 2025 11:11 PM GMT US Rates Strategy | North America To $8 Trillion and Beyond US money market fund assets under management made their latest record high this week, surpassing the $8tr mark, defying a popular misconception that Fed rate cuts would lead to mass outflows. Attractive absolute and relative yields point to further inflows in 2026, taking AUM to $8tr and beyond. Key Takeaways Please add me to your distribution list. M Idea Morgan Stanley & Co. LLC Martin W Tobias, CFA Strategist Martin ...

Standing Repo Facility (SRF) at zero, after doing its job calming the repo market at month-end. QT ended on December 1, as per the Fed’s announcement at its FOMC meeting. But in November, QT continued, and the Fed’s total balance sheet declined by $37 billion in November, to $6.53 trillion, according to the Fed’s weekly balance sheet today.Over the three years and five months of QT, the Fed shed $2.43 trillion in assets, or 27% of its total assets, and over 50% of the $4.81 trillion it had piled on during m ...

Market Overview - The market is rallying on three key pillars: an easing Fed cycle, earnings growth, and strong economic conditions [2][4] - The Fed's easing cycle is perceived as somewhat shaky due to concerns about inflation and unemployment [4][19] Economic Conditions - The current economic environment is characterized by a K-shaped recovery, where different sectors are recovering at different rates [4][15] - There are concerns regarding the credit market and potential fiscal implications due to increased activity in the repo market [7][8] Earnings Growth - Strong earnings growth is crucial for market performance, with companies showing broadening earnings potential [6][22] - The impact of artificial intelligence on productivity is noted, with companies able to do more with fewer employees, raising concerns about consumer demand [10][13][15] Federal Reserve Outlook - There is uncertainty regarding the Fed's path forward, particularly for a potential rate cut in December, as economic data remains unclear [19][20] - Corporate earnings are expected to provide insights into consumer behavior, especially concerning lower-income consumers [22][23]

Macroeconomic Analysis - The Federal Reserve's Quantitative Tightening (QT) is distinct from Quantitative Easing (QE), with QT involving the reduction of liquidity by allowing bonds to mature without reinvestment, while QE involves expanding the balance sheet through asset purchases [1] - QT is scheduled to officially end on December 1, 2025, and the Fed continues to reduce liquidity until then [1] - Historically, the Fed initiates QE following a liquidity crisis, a pattern observed in 2008, the 2019 repo crisis, and the 2020 Covid crash [1] Liquidity and Repo Market Dynamics - A $50 billion liquidity operation through the Fed's Standing Repo Facility (SRF) is a short-term overnight loan, not a permanent injection of cash or money printing [2] - The SRF allows banks to borrow cash directly from the Fed, up to $500 billion per day, serving as a backstop introduced after the 2019 repo market collapse [3] - SRF usage of $50 billion in a single day signals market stress, as normal usage is around $0-5 billion per day, indicating that liquidity in the private repo market has dried up [4] - The reverse repo pool has been drained from approximately $2.2 trillion to about $14 billion, suggesting a lack of excess liquidity [4] Historical Context and Future Outlook - The Federal Reserve first conducted QT in 2017, which ended in the 2019 repo market collapse, followed by the COVID crash, and the current situation mirrors this setup [6] - The previous QT ran from October 2017 to September 2019, with a massive QE program launched six months later in March 2020 after the COVID market collapse [6] - The system is showing signs of cracking again, with liquidity drying up, suggesting that the real crisis has not yet started [7]

Monetary Policy & Liquidity - The market anticipates a 25bps (0.25%) rate cut by the FOMC, but this is already factored into prices [1] - The end of Quantitative Tightening (QT) does not equate to the start of Quantitative Easing (QE), implying continued tight monetary conditions [1] - Liquidity is diminishing, and despite calls for new liquidity injections, the FED is unlikely to initiate QE soon, given inflation is 50% above the target, unless a major crisis occurs [1] - The FED has historically only printed money during crises, and a crisis is currently brewing in the REPO market [2] - Repo facilities are strained, overnight funding is collapsing, and liquidity stress is spreading throughout the system, indicating a very low amount of available cash [2] Market Outlook - The author maintains a short position on BTC and Stocks, expecting no sustainable strength [1][2] - The author's short orders for BTC are stacked between 116,700–117,200, primarily in USDT [2] - The expectation is that euphoria will fade, liquidity will vanish, and the system will crack, prompting the Fed to print again [2]