Federal Reserve Q2 2026 Z.1 “flow of funds” report.
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Another fascinating Federal Reserve (Q2) Z.1 report – ongoing ballooning in Treasuries and Agency debt, “repo,” Wall Street assets and lending, money funds, securities, household assets and net worth…
Non-financial debt (NFD) expanded during Q2 at a seasonally-adjusted and annualized (SAAR) rate of $4.289 TN, down from Q1’s booming SAAR $4.851 TN – but up significantly from Q2 ‘25’s SAAR $2.682 TN – to a record $84.093 TN. NFD inflated $5.073 TN y-o-y, the strongest annual expansion excluding the pandemic (2020’s $6.778 TN).
Foreign U.S. borrowings increased $449 billion during Q2 (22% annualized) to a record $8.611 TN, second only to Q1 ’25 ($480bn), with one-year growth of $1.036 TN, or 13.7%. Foreign debt was up $2.063 TN, or 31.5% over two years.
Total Financial Sector borrowings rose $657 billion (9.7% annualized) to a record $27.662 TN – the strongest quarterly expansion in five years.
Outstanding Treasury Securities rose $237 billion during the quarter to a record $30.878 TN, the weakest expansion in a year. Still, Treasuries inflated $2.360 TN over four quarters, with two-year growth of $3.975 TN. Outstanding Treasuries rose $14.249 TN, or 86%, over 26 quarters and $26.385 TN, or almost six-fold, since 2007. The ratio of Treasuries-to-GDP ended Q2 at 95%, up from 2019’s 76%, 2007’s 31%, and 1999’s 33%.
Agency (MBS/bonds) Securities increased $201 billion (6.4% annualized) during Q2 (up from Q1’s $74bn) to a record $12.763 TN – the strongest quarterly expansion since Q1 ’23 (Silicon Valley Bank/bank run Crisis). At $43.641 TN, combined Treasury and Agency Securities ended June at 134% of GDP.
Government-Sponsored Enterprise (GSE) assets surged $176 billion during Q2 – the largest growth back to Q1 ’23 – to a record $9.869 TN. The FHLB banks expanded $78 billion to $802 billion, also the strongest since Q1 ’23.
Corporate Bonds expanded $307 billion (7.0% annualized) during the quarter to a record $17.705 TN – the strongest growth in five quarters. Corporate Bonds expanded $901 billion y-o-y, the largest one-year growth since Q3 ’24. Non-Financial corporate bonds increased $82 billion, with Financial Sector bonds up $108 billion during Q2. Broker/Dealers expanded bond borrowings by $51 billion – the strongest increase since Q3 ’24.
Total Debt Securities expanded $843 billion during Q2 to a record $67.338 TN, down from Q1’s $1.009 TN, while up from Q2 ‘25’s $504 billion. Total Securities expanded $3.863 TN over four quarters, second only to 2020’s record expansion ($6.227 TN) and above the five-year annual average of $3.00 TN.
Notably, Equities surged a record $17.644 TN during the quarter to an all-time high of $123.687 TN – with one-year growth of an incredible $25.448 TN, or 25.9%. For perspective, Equities’ Q2 expansion surpassed the annual record set last year ($16.355 TN). Equities ended June at record 353% of GDP, up from 2019’s 248%, and compared to previous cycle peaks, Q3 ‘07’s 188% and Q1 2000’s 210%.
Illuminating a key Bubble Dynamic, Total (Debt and Equities) Securities ended Q2 at a record $191.025 TN, or a record 588% of GDP. Previous cycle peaks had Total Securities at $54.761 TN, or 376% of GDP, during Q3 2007 and $35.713 TN, or 357% of GDP, for Q1 2000.
Playing second fiddle to booming securities markets, the banking system nonetheless posted another solid quarter. Bank Assets expanded $298 billion to a record $30.031 TN, slowing from exceptional Q1 growth ($585bn), but little changed from Q2 ’25. Total Loans expanded $291 billion, or 6.9% annualized, to a record $17.200 TN – with one-year growth of $1.018 TN (6.3%). This was double that $530 billion annual average over the past 16 years. Business loans expanded $165 billion, or 10.8% annualized, with one-year growth of $713 billion, or 12.9%. Mortgage loans expanded $70 billion (3.8% ann.) and Consumer Credit $53 billion (7.7% ann.)
Growth in Bank Debt Securities holdings slowed to $43 billion, posting small declines in both Treasury and Agency holdings. Meanwhile, holdings of Corporate Bonds rose $60 billion to a record $1.018 TN – the strongest expansion since Q1 ’21. On the liability side, Total Deposits expanded $245 billion to a record $22.421 TN, with one-year growth of $1.162 TN (5.5%). Repo Liabilities gained $58 billion to $822 billion.
The historic Broker/Dealer boom ran unabated during Q2, with total assets expanding a record $553 billion, or 33% annualized, to a record $7.242 TN. The Asset “Loans” jumped $167 billion, or 22% annualized, to a record $3.178 TN. One-year growth of $520 billion (19.6% ann.) was an annual record. It's worth noting that loans had never posted annual growth above $365 billion prior to 2025's record $488 billion. Debt Securities holdings declined $29 billion, led by a $54 billion drop in Treasuries.
For the most part, there’s little transparency to explain the surge in Broker/Dealer assets. Miscellaneous Assets jumped $441 billion to a record $2.353 TN (35% one-year growth), with Miscellaneous Liabilities up $306 billion (32% one-year growth) to a record $1.678 TN. Repo Liabilities gained $75 billion (9.9% ann.) to a record $3.116 TN, with one-year growth of $403 billion, or 14.9%. A key Bubble data point: Repo Liabilities ballooned $1.502 TN, or 93%, over the past 15 quarters.
At the epicenter of Bubble excess, Total System Repo Assets expanded $221 billion, or 10.5%, during the quarter to a record $8.669 TN – with nine-month growth of $683 billion, or 11.4% annualized. System Repo Liabilities surged $343 billion, or 20% annualized, to a record $7.165 TN. Curiously, Rest of World (ROW) Repo Liabilities jumped $169 billion, or 31% annualized, to a record $2.350 TN – with one-year growth of $342 billion, or 17.0%.
Money Market Fund Assets (MMFA) expanded another $152 billion to a record $8.441 TN – with one-year growth of $960 billion, or 12.8%. Over 15 quarters of historic monetary inflation, MMFA ballooned $3.357 TN, or 66%. Money Fund Repos holdings jumped $142 billion (19.5% ann.) during Q2 to $3.075 TN. Treasury holdings declined $145 billion to $3.282 TN, though one-year growth remained a blistering $668 billion, or 26%. Agency holdings gained $107 billion to a record $1.208 TN, with one-year growth of $215 billion, or 22%.
Rest of World (ROW) remains a key Bubble manifestation. ROW holdings of U.S. financial assets inflated a record $4.490 TN (30% annualized) during Q2 to a record $63.891 TN – with one-year growth of $7.904 TN, or 14.1%. ROW assets surged a staggering $20.692, or 48%, over the past 11 quarters – with assets up a crazy three-fold since 2008. Debt Securities holdings increased $105 billion, the slowest quarterly growth in six quarters. Interestingly, Treasury holdings declined $79 billion to $9.269 TN – reducing 11-quarter growth to $1.760 TN. Equities holdings inflated $3.273 TN during the quarter to a record $22.211 TN. More curious, ROW Repo Liabilities surged $169 billion during the quarter (31% ann.) to a record $2.350 TN – with 11-quarter growth of $876 billion, or 59%. It’s reminiscent of the then unprecedented $300 billion increase in ROW repo liabilities in 2006/07.