Federal Reserve Q3 2025 Z.1 “flow of funds” report.
Non-Financial Debt (NFD) expanded a blistering $1.711 TN (nominal), or 8.8% annualized, during Q3 to a record $79.671 TN – driven by a $1.053 TN jump in outstanding Treasury Securities. This was the strongest quarterly NFD growth since massive covid Q2 2020 Treasury issuance. NFD inflated $3.208 TN y-o-y and $6.709 TN over two years. For comparison, NFD expanded $2.468 TN during pre-covid 2019 (2000-2019 avg. $1.839TN). NFD ended September at a non-covid record 256% of GDP.
Household Sector Debt expanded at a 4.07% rate, the strongest pace of borrowing since Q3 2022. Corporate debt growth was down slightly q-o-q to 4.50% - but was up from Q3 2024’s 3.64%.
Federal Reserve Assets were little changed (down $6bn) during Q3 at $5.731 TN (down $495bn y-o-y). Treasury holdings increased $20 billion to $3.831 TN, while Agency Securities declined $19 billion to $1.805 TN. There were, however, notable changes in Fed Liabilities. Reverse Repos (where money funds and financial institutions park short-term funds with the Fed) sank $412 billion to $49 billion, the low back to Q4 2000 – and was down from Q4 2022’s peak of $2.554 TN. Meanwhile, the Liability “Treasury General Deposit Account” jumped $434 billion to $891 billion (high since Q1 2021).
Total system Repo Assets contracted $411 billion to $6.298 TN, a decline explained by the drop in Fed “reverse repos.” And while system Repo Liabilities declined $272 billion from Q2’s record level to $7.828 TN, Repo Liabilities were still up $486 billion y-o-y (6.6%). The Q3 Repo slowdown and Q4 funding market tightening/instability are not coincidental. The expansion of repo funding for levered speculation creates liquidity, while deleveraging is a drag on liquidity. At this point in the cycle, even a slowdown in new leveraging will be felt in funding markets.
Broker/Dealer Assets inflated another $108 billion, or 7.2% annualized, to a record $6.126 TN, with one-year growth of $618 billion, or 11.2% annualized. The asset “Loans” rose $49 billion (24% annualized) to a record $867 billion, with notable one-year growth of $183 billion, or 26.8%. Loans have doubled since the end of 2019. Broker/Dealer Debt Securities holdings dipped $24 billion from Q2’s record to $1.256 TN, while one-year growth was a potent $230 billion, or 22.5%.
Broker/Dealer Repo Assets were little changed at $1.855 TN, with Repo Liabilities slipping $14 billion from Q2’s record to $2.699 TN (up $191bn y-o-y). Miscellaneous Assets gained $88 billion to a record $1.295 TN (up $147bn y-o-y), as Miscellaneous Liabilities rose $61 billion to a record $1.327 TN (up $151bn y-o-y).
Money Market Fund Assets (MMFA) surged $293 billion, or 15.7% annualized, during Q3 to a record $7.774 TN. This increased y-o-y growth to $935 billion (14.3%); 12-quarter growth to $2.690 TN (53%); and 23-quarter growth to an astounding $3.772 TN (94%). During Q3, MMFs reduced Repo holdings by $333 billion (to $2.772 TN), while boosting Treasuries by $618 billion to a record $3.232 TN. Treasury holdings were up $573 billion, or 23.4%, y-o-y and $2.110 TN, or 188%, over 23 quarters. MMFs increased Agency Securities holdings by $6 billion to $999 billion, with one-year growth of $205 billion (28%).
During Q3, MMFs provided key demand for outsized Treasury issuance. Treasury Securities surged $1.053 TN (nominal) during Q3 to a record $29.572 TN, with one-year growth of $1.985 TN. Treasuries inflated $3.941 TN (15.4%) over two years and a staggering $12.943 TN, or 78%, over the past 23 quarters. Outstanding Treasuries have ballooned five-fold (up $25.078 TN) since 2007. For Q3, think of it terms of the money fund complex shifting holdings from Fed Reverse Repos to Treasury Bills, which shifted the Fed’s Liabilities from Repos (owed to MMF) to the Treasury’s General Deposit Account.
Banking system (“Private Depository Institutions”) asset growth slowed to $201 billion (2.8% annualized) – to a record $28.772 TN. Bank Assets were up $1.095 TN y-o-y. Total Loans expanded $165 billion, or 4.3% annualized, to a record $15.521 TN – with one-year growth of $727 billion (4.9%). Debt Securities holdings expanded $115 billion, or 7.3% annualized, to $6.447 TN. Treasury Holdings rose $92 billion (19.8% ann.) to a record $1.940 TN, with six-month growth of $200 billion (up $271bn, or 16.2% y-o-y). Bank Treasury holdings have doubled since Q1 2020.
Corporate borrowings increased from a notably weak Q2 to $143 billion (3.5% ann.), with one-year growth of $465 billion, or 2.9%. Interestingly, Corporate asset-backed securities (ABS) rose $63 billion (16.3% ann.) to a record $1.596 TN, with one-year growth of $169 billion, or 11.8%.
Mortgage Credit is slowing a pulse. At $206 billion (3.9% ann.), Total Mortgage growth was the strongest since Q4 2022. Growth in Home Mortgages was flat at $116 billion (3.2% ann.), while Commercial and Multifamily Mortgages expanded $45 billion (4.6% ann.) and $40 billion (6.8% ann.) – both the strongest expansions in at least two years.
The Household balance sheet remains fundamental to Bubble analysis. Household Assets surged $6.291 TN, or 12.8% annualized, to a record $202.830 TN. The $13.604 TN two-quarter rise was the strongest since Q1/Q2 2001 (covid crisis recovery). With Household Liabilities increasing $227 billion during Q3, Household Net Worth inflated $6.064 TN, or 13.8% annualized, to a record $181.632 TN. Household Net Worth to GDP rose to a non-covid record 652%. For comparison, this ratio ended 2019 at 527%, with previous cycle peaks 487% (Q1 2007) and 443% (Q1 2000). Net Worth inflated $12.912 TN, or 7.7%, over the past year and $38.751 TN, or 27.1%, over three years. For an explanation of economic resilience, look no further.
Real Estate holdings dipped $287 billion to $52.057 TN. Meanwhile, holdings of Financial Assets surged $6.437 TN, or 19.1% annualized, during Q3 to a record $141.234 TN (non-covid record 454% of GDP). Debt Securities holdings gained $191 billion (12.9% annualized) to a record $6.133 TN, with a three-year gain of $2.453 TN, or 67%. Household Treasury holdings jumped $139 billion (19.8% ann.) to a record $2.961 TN, with an unprecedented three-year surge of $1.835 TN, or 163%.
Equities and Mutual Funds surged $5.037 TN, or 37% annualized, to a record $59.590 TN (3-yr gain $24.530 TN, or 70%). Equities/Mutual Funds rose to a record 192% of GDP, compared to previous cycle peaks 105% (Q3 ’07) and 116% (Q1 2000).
Curiously, Household Money Market Fund (MMF) holdings swelled another $186 billion to a record $5.035 TN. For comparison, Total Deposits increased only $22.4 billion during the quarter to $14.756 TN. Over three years, MMF inflated a historic $2.104 TN (72%), while Total Deposits declined $448 billion (2.9%). I would be curious to know what percentage of American households actually invest in money market funds.
The Rest of World (ROW) balance sheet is always intriguing. ROW holdings of U.S. financial assets were at about $7 TN when I began to post quarterly Z.1 “flow of funds” analysis back in 1999. For Q3, ROW assets inflated $3.582 TN, or 23.7% annualized, to a record $64.121 TN. ROW Assets ballooned $7.661 TN, or 13.6%, y-o-y, and an incredible $25.405 TN, or 66%, over 20 quarters. ROW assets to GDP ended Q3 at a record 206% of GDP. This compares to previous cycle peaks 119% (Q4 ‘07) and 82% (Q3 2000).
ROW Debt Securities holdings were up $345 billion (9.0% ann.) for the quarter and $909 billion y-o-y (6.1%) to a record $15.707 TN. Treasuries rose $142 billion (6.2% ann.) and $554 billion y-o-y (6.4%) to a record $9.269 TN. Holdings of Corp Debt jumped $150 billion (13% ann.) and $345 billion (7.8%) to a record $4.768 TN. Equities and Mutual Fund holdings surged $1.597 TN, or 32.5% annualized, to a record $21.235 TN, with notable one-year growth of $3.531 TN, or 20%.
ROW continues to a major Repo market operator. Repo Assets expanded $90 billion (23.7% ann.) during Q3 to a record $1.597 TN, with one-year growth of $198 billion (14%). Repo Liabilities gained another $43 billion (8.6% ann.) to a record $2.047 TN, with one-year growth of $271 billion (15.2%). Over 20 quarters, Repo Assets inflated $737 billion (86%), with Repo Liabilities ballooning $841 billion (70%). Heck of a Bubble.