Liquidity is pouring into short-term markets like never before. Is this a bad sign?

An unusual increase in short-term lending by cash-rich companies is raising fears on Wall Street that a period of market turmoil is looming.

Investors such as money market funds and banks reserve more than $ 1 trillion in cash overnight at the Federal Reserve in exchange for securities. This is the highest on record since the Fed opened the facility for so-called reverse repurchase agreements in 2013.

The magnitude of this flood has led some analysts to warn that short-term funding markets appear to be vulnerable to disruption.

The worry is not new. The Fed said at its latest meeting that it would establish two new standing facilities to ensure investor access to a related market known as a repo, in which financial firms borrow money using securities such as repo. than Treasury debt as collateral. The move aims to prepare markets for the volatility that could strike when the central bank begins to tighten financial conditions in the coming years.

Short-term debt sits at the intersection of markets and the economy and, as such, the functioning of these markets is critical to the health of the US recovery and the broad rise in prices of stocks, bonds. and other assets.