The Federal Reserve’s Reverse Repo Facility has dropped to its lowest level in years — a sign that liquidity conditions in the market are tightening fast.

When the RRP balance falls this sharply, it typically means that excess cash in the system is drying up and institutions are deploying capital elsewhere. Historically, such a decline has often preceded renewed liquidity injections or balance-sheet expansion from the Fed.

If this trend continues, the next logical phase could be a shift toward easing policy potentially through aggressive QE or increased money supply to stabilize funding markets.

In short, the liquidity tide that once supported higher yields may soon reverse and risk assets could start feeling it first.