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: May 17, 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.
Cross-Index Playbook (live)
Current Regime: Risk-On Expansion
calmFundamentals, positioning, and liquidity are broadly supportive of risk assets.
CVRP at 9 indicates low recession probability. CRAI at 52 shows healthy risk appetite without extremes. CNLI at $5.89T provides ample liquidity. NVI at 88 suggests the narrative environment is accelerating, a regime change may be forming. This is the environment where staying invested and riding trends pays off.
- -Stay invested in risk assets. The macro backdrop is supportive.
- -Focus bottom-up: with no macro headwind, stock and sector selection drives returns.
- -Don't overthink or hedge excessively, the cost of protection drags returns in benign environments.
- -Watch CVRP and NVI for early deterioration signals. Regimes shift fastest when least expected.
CNLI at $5.89T and CVRP at 9, the plumbing is working and the economy is healthy. This combination historically produces the strongest risk-asset performance. Stay long, focus on sectors with earnings momentum.
CNLI at $5.89T and NVI at 88, a narrative shift is underway and there's liquidity to act on it. The direction of the move depends on NVI's convergence signal (currently insufficient data). Liquidity + narrative alignment produces powerful trends.
This regime assessment is generated algorithmically from live Convex index values. It is not financial advice. Cross-index signals add context but do not guarantee outcomes. Always consider your own risk tolerance, time horizon, and the full market picture.
How to Use This Signal
How CNLI Triggers Position Changes
CNLI is a slow-moving regime indicator: it changes meaningfully on monthly-to-quarterly timescales rather than week-to-week. The right way to use it is as a multi-quarter macro overlay rather than a tactical timing tool. Three regimes generate distinct positioning signals.
Regime 1: CNLI rising and Above $5.5T. This is the liquidity-tailwind regime, historically associated with multiple expansion in equities, tight credit spreads, and outperformance of long-duration risk assets (BTC, Nasdaq, growth equities). Action: full risk-on positioning, with overweight to long-duration assets that benefit most from liquidity expansion. The 2020-2021 cycle (CNLI from $3.7T to $7.0T) saw S&P 500 rise +48% and Nasdaq +75% over the period; BTC ran from $5,000 to $69,000 (+1,280%). When CNLI is rising, the highest-beta assets compound the fastest.
Regime 2: CNLI falling but Above $3.5T. This is the liquidity-neutral regime, where positioning should be more selective. Action: reduce duration risk (both rate duration and equity-multiple duration), favor cash-flow-rich large-caps over speculative growth, hold modest hedges. The mid-2022 to mid-2023 period saw CNLI fall from $7T to $5.5T while equities chopped sideways; the right action was a defensive overlay even as the index level was still in the supportive zone.
Regime 3: CNLI Below $3.5T or rapidly contracting. This is the liquidity-headwind regime, the worst for risk assets and the historical setup for major drawdowns. Action: aggressive de-risking, long-duration Treasuries, defensive sector rotation, cash buffer. The 2008 cycle (CNLI not yet calculated but the underlying components were contracting sharply) coincided with the -57% S&P 500 drawdown. The 2022 contraction (CNLI from $7T to $5.5T) coincided with the -25% S&P drawdown and 2008-comparable bond losses.
The key tactical signal is CNLI direction at major inflection points. The transition from Regime 1 to Regime 2 (CNLI peaking and rolling over) typically precedes equity-market peaks by 3-6 months. The transition from Regime 3 to Regime 2 (CNLI bottoming and rising) historically precedes equity-market troughs by 0-3 months and is the cleanest entry signal for full risk-on re-allocation.
Setup 1: 2023 RRP Drain Liquidity Surprise
Throughout 2023, conventional wisdom was that QT (Fed reducing balance sheet by $95B/month) would tighten financial conditions and pressure equities. Headlines focused on the shrinking WALCL (Fed balance sheet) line. CNLI told a different story: the RRP (Reverse Repo Facility) was draining from $2.55T at peak (December 2022) toward zero throughout 2023, releasing roughly $200B per month back into market liquidity, far more than QT was removing.
The result: CNLI rose from $5.5T to $5.7T over the course of 2023 even as the headline Fed balance sheet shrank by over $1T. The S&P 500 returned +26.5% calendar 2023, confounding bearish consensus that pointed to QT. Investors who used CNLI as their guiding liquidity metric stayed risk-on through the rally; investors who tracked WALCL alone were systematically underweight equities through one of the strongest years on record. The cycle is the canonical CNLI-vs-WALCL divergence and the proof that the RRP component is non-trivial in modern liquidity analysis. Action that worked: equity overweight (especially Nasdaq, where the long-duration multiple expansion was largest), HY credit overweight (HY OAS compressed from 480bp to 320bp), and short long-duration Treasuries until late 2023.
Setup 2: 2020 COVID Liquidity Surge
Between February 2020 and June 2020, CNLI rose from $3.7T to $5.8T as the Fed launched unlimited QE, expanded balance sheet from $4.2T to $7.1T, and the Treasury built a $1.6T TGA buffer for pandemic spending. The CNLI surge was synchronous with the equity-market V-shaped recovery (SPY from $222 March 23 to $339 by August 2020) and the Bitcoin reflation (from $3,949 March 13 to $13,000 by October 2020).
Action that worked: aggressive risk-on as soon as CNLI inflected upward in mid-March 2020. Investors who treated the policy response as decisive and bought the equity, credit, and crypto trough captured the steepest 12-month returns of the post-financial-crisis era (S&P 500 +60%, BTC +250%, HY +28% from the March 2020 lows). The 2020 episode is the canonical example of policy resolve dwarfing economic fundamentals on liquidity-sensitive timescales: real economic data was disastrous through Q2 2020, but the liquidity trajectory had already turned and was the dominant driver of asset prices. Investors waiting for fundamentals to confirm missed most of the rally.
What CNLI Is Saying Right Now (April 2026)
CNLI in April 2026 is in the moderate-to-elevated zone (estimated $5.5-5.8T range as of April 2026 with WALCL at maintenance levels post-QT, RRP near depleted, and TGA in normal-operating range). The reading reflects a transition from the unusual 2023 liquidity-tailwind environment (RRP draining faster than QT was removing) to a more normalized regime where CNLI changes will track WALCL more directly.
The Fed concluded QT in mid-2024 and now operates a maintenance balance sheet near $7.5T. Without the RRP drain to provide a structural tailwind, CNLI's directional moves now depend more on TGA dynamics (which can swing $200-500B around debt-ceiling resolutions and tax dates) and on whether the Fed begins QE again (not currently planned, but possible in a recession scenario).
The current setup is supportive but no longer accelerating. The historical pattern from this regime (2014-2018 was a similar maintenance-balance-sheet period) is moderate equity returns (S&P 500 averaged 13% calendar over 2014-2018) with periodic liquidity-driven volatility around fiscal events.
Action: maintain risk-on positioning consistent with elevated CNLI, but recognize that the 2020-2023 liquidity-tailwind regime has ended. The next major signal will be either CNLI rolling below $5T (recession-warning) or rising above $6T (new QE program, full risk-on). Watch RRP for any sustained re-build (signals stress in money markets, would compress CNLI without WALCL changing) and TGA trajectory around the next debt-ceiling cycle.
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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Frequently Asked Questions
What is the 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. Full methodology, components, and historical case studies are published on this page for transparency.
What components go into CNLI?▾
CNLI combines 3 components: Federal Reserve Balance Sheet, Reverse Repo Facility (RRP), Treasury General Account (TGA). Each component is documented with its source series, weight, and the reason it was included in the index. 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 do I interpret a CNLI reading?▾
The index uses a scaled reading with labelled zones: Above $5.5T = Elevated; $3.5T - $5.5T = Moderate; Below $3.5T = Low. The current reading, its zone, and the 30-day and 90-day change are displayed at the top of this page. Historical case studies below show how the index has behaved during prior regime transitions.
How often is CNLI updated?▾
CNLI recalculates when its underlying component series publish new data. Most components refresh daily or weekly, so the composite reading is typically no more than one business day stale. The "Last updated" timestamp next to the current reading shows the exact observation date.
What are the known limitations of CNLI?▾
No single composite indicator captures every risk channel. The documented limitations for CNLI are listed in the Limitations section on this page. Convex publishes these explicitly so that readers can form their own view about when the index is most and least informative. For a cross-check against other Convex indices, see the Cross-Index Playbook below.
How does CNLI differ from comparable third-party indicators?▾
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. The full list of what makes CNLI distinctive is on this page under "What Makes This Different." Convex publishes the formula so any researcher can replicate the calculation, rather than treating the index as a black box.
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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.