May 29, 2026 | 10:20 ET
RISK PREMIUM COMPRESSION
ERP compression
*Fed policy rate probabilities are generated by a proprietary model that is not affiliated with, nor intended to replicate, any third-party methodology.*
Signals
| Next FOMC | 🏦 2026-06-17 — Cuts: 0% | Hold: 100% | Hikes: 0% ◆ Current bias: Neutral |
| Valuation | 🚨 Extreme compression: ERP 0.20% — equity risk premium is critically thin |
| Liquidity Flow | 🚀 Strong liquidity expansion (Δ4W +$149B) — supportive for risk assets |
Next FOMC
🏦 2026-06-17 — Cuts: 0% | Hold: 100% | Hikes: 0% ◆ Current bias: Neutral
🏦 2026-06-17 — Cuts: 0% | Hold: 100% | Hikes: 0% ◆ Current bias: Neutral
Valuation
🚨 Extreme compression: ERP 0.20% — equity risk premium is critically thin
🚨 Extreme compression: ERP 0.20% — equity risk premium is critically thin
Liquidity Flow
🚀 Strong liquidity expansion (Δ4W +$149B) — supportive for risk assets
🚀 Strong liquidity expansion (Δ4W +$149B) — supportive for risk assets
Regime Changes
| NONE |
NONE
Rates
| 3M | 6M | 1Y | 2Y | 5Y | 10Y | 30Y |
|---|---|---|---|---|---|---|
| 3.68% | 3.79% | 3.86% | 4.13% | 4.27% | 4.56% | 5.07% |
3M
3.68%
3.68%
6M
3.79%
3.79%
1Y
3.86%
3.86%
2Y
4.13%
4.13%
5Y
4.27%
4.27%
10Y
4.56%
4.56%
30Y
5.07%
5.07%
Curve
| 2Y – 3M | 45 bp |
| 10y – 3M | 88 bp |
| r* estimate | 4.22% |
Credit
| AaaAaa represents the highest rung of investment-grade corporate debt, indicating top-level creditworthiness and the lowest default risk. More | 5.61% |
| BaaBaa represent the lowest rung of investment-grade corporate debt with moderate credit risk, making them susceptible to higher default risk than Aaa bonds. More | 6.13% |
Equities
| S&P500 | 7473.47 |
| Forward PE | 21 |
| Earnings Yield | 4.76% |
| ERP | 0.20% |
Credit Spreads
| HY OAS | 274 bp |
| BAA-10Y | 157 bp |
| AAA-30Y | 54 bp |
Delta
| 2Y Δ | 4 bp |
| 10Y Δ | -3 bp |
| HY Δ | -6 bp |
Financial Risk & Volatility
| FSI | -0.76 |
| MOVE | 79.87 |
Liquidity (System Proxy)
| Fed Assets | $6.70T |
| Treasury Cash | $842.7B |
| Reverse Repo | $1.9B |
| Net Liquidity | $5.86T |
| Δ4W Net Liquidity | Δ4W +$148.8B |
Regime
| ERP | Extreme Compression |
| Credit | Risk-On |
| Financial stress | Calm |
| Banking system | Loose |
| Equity | Neutral |
Interpretation
Macro:
The yield curve is healthily upward-sloping with long-end yields remaining restrictive. Fed model forecasts a high probability of a ‘no change’ decision at the upcoming meeting, indicating strong conviction in the expected outcome. The growth outlook remains constructive. The estimated neutral rateThe long-term theoretical level at which interest rates neither stimulate nor restrict economic growth. More remains consistent with a stable expansionary environment, with market rates above this level, suggesting slightly loose financial conditions and accommodative pricing. Credit markets are supportive, indicating stable growth expectations. Equity risk premium is extremely compressed, indicating markets are pricing near-perfect conditions. Elevated yields alongside compressed ERP create a valuation headwind for equities. Risk appetite is strong across both equities and credit markets.
The yield curve is healthily upward-sloping with long-end yields remaining restrictive. Fed model forecasts a high probability of a ‘no change’ decision at the upcoming meeting, indicating strong conviction in the expected outcome. The growth outlook remains constructive. The estimated neutral rateThe long-term theoretical level at which interest rates neither stimulate nor restrict economic growth. More remains consistent with a stable expansionary environment, with market rates above this level, suggesting slightly loose financial conditions and accommodative pricing. Credit markets are supportive, indicating stable growth expectations. Equity risk premium is extremely compressed, indicating markets are pricing near-perfect conditions. Elevated yields alongside compressed ERP create a valuation headwind for equities. Risk appetite is strong across both equities and credit markets.
FOMC:
Markets are firmly pricing in a ‘no change’ decision at the upcoming meeting, with little dispersion in expected outcomes.
Markets are firmly pricing in a ‘no change’ decision at the upcoming meeting, with little dispersion in expected outcomes.
[Data Sources: FactSet.com | Investing.com | FRED | yahoo finance]
