Last Updated: July 14, 2026 | 08:38 ET
GROWTH RESILIENT | RISK APPETITE STRONG
TIGHTENING BIAS | CREDIT SUPPORTIVE | FINANCIAL CONDITIONS BENIGN
Signals
| Next FOMC | 🏦 2026-07-29 — Cuts: 0% | Hold: 41% | Hikes: 59% ◆ Current bias: Data-Dependent |
| Valuation | 🚨 Extreme compression: ERP 0.32% — equity risk premium is critically thin |
| Liquidity Flow | ↗ Liquidity expanding (Δ4W +$59B) — modest tailwind |
Next FOMC
🏦 2026-07-29 — Cuts: 0% | Hold: 41% | Hikes: 59% ◆ Current bias: Data-Dependent
🏦 2026-07-29 — Cuts: 0% | Hold: 41% | Hikes: 59% ◆ Current bias: Data-Dependent
Valuation
🚨 Extreme compression: ERP 0.32% — equity risk premium is critically thin
🚨 Extreme compression: ERP 0.32% — equity risk premium is critically thin
Liquidity Flow
↗ Liquidity expanding (Δ4W +$59B) — modest tailwind
↗ Liquidity expanding (Δ4W +$59B) — modest tailwind
Fed Funds Futures Probabilities
| Meeting | -50bps | -25bps | No Change | +25bps | +50bps |
|---|---|---|---|---|---|
| Jul 29 | 0.0% | 0.0% | 41.4% | 44.2% | 14.4% |
| Sep 16 | 0.0% | 0.0% | 13.6% | 62.2% | 24.2% |
| Oct 28 | 0.0% | 0.0% | 2.0% | 96.2% | 1.9% |
| Dec 09 | 0.0% | 0.0% | 0.0% | 42.9% | 57.1% |
*Fed policy rate probabilities are generated by a proprietary model that is not affiliated with, nor intended to replicate, any third-party methodology.*
*Near-term meetings incorporate calendar-weighted adjustments, while longer-dated meetings reflect raw futures-implied policy expectations.*
Policy Path
Markets are leaning toward additional policy tightening at the upcoming meeting, although conviction remains incomplete. The broader futures curve, however, continues to price a modest tightening bias later in the year.
Key Changes This Week
| Metric | Weekly Change |
|---|---|
| 2Y Treasury | +7 bp |
| 10Y Treasury | +7 bp |
| 30Y Treasury | +8 bp |
| HY OAS | -5 bp |
| 10Y-2Y Curve | -0 bp |
| Net Liquidity | Δ4W +$59.1B |
Regime Changes
| No regime changes this week |
No regime changes this week
Rates
| 3M | 6M | 1Y | 2Y | 5Y | 10Y | 30Y |
|---|---|---|---|---|---|---|
| 3.85% | 3.99% | 4.06% | 4.21% | 4.30% | 4.56% | 5.06% |
3M
3.85%
3.85%
6M
3.99%
3.99%
1Y
4.06%
4.06%
2Y
4.21%
4.21%
5Y
4.30%
4.30%
10Y
4.56%
4.56%
30Y
5.06%
5.06%
Curve
| 2Y – 3M | 36 bp |
| 10y – 3M | 71 bp |
| r* estimate | 4.20% |
Credit
| AaaAaa represents the highest rung of investment-grade corporate debt, indicating top-level creditworthiness and the lowest default risk. More | 5.72% |
| 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 | 6.14% |
Equities
| S&P500 | 7575.39 |
| Forward PE | 20.5 |
| Earnings Yield | 4.88% |
| ERP | 0.32% |
Credit Spreads
| HY OAS | 269 bp |
| BAA-10Y | 158 bp |
| AAA-30Y | 66 bp |
Delta
| 2Y Δ | 7 bp |
| 5Y Δ | 7 bp |
| 10Y Δ | 7 bp |
| 30Y Δ | 8 bp |
| HY Δ | -5 bp |
Financial Risk & Volatility
| FSI | -0.72 |
| MOVE | 69.55 |
Liquidity (System Proxy)
| Fed Assets | $6.74T |
| Treasury Cash | $749.2B |
| Reverse Repo | $3.3B |
| Net Liquidity | $5.98T |
| Δ4W Net Liquidity | Δ4W +$59.1B |
Regime
| ERP | Extreme Compression |
| Credit | Risk-On |
| Financial stress | Calm |
| Banking system | Loose |
| Equity | Defensive |
Interpretation
Rates & Curve Structure:
The Treasury curve remains positively sloped across observed maturities, indicating a normal term structure. Long-end yields remain moderately restrictive. This week’s move reflected a parallel bearish shift in the Treasury curve, with the largest yield declines occurring in the long-end and little change to overall curve structure. Within the curve, the front-end was steepening. Rate volatility remains subdued, suggesting markets remain comfortable with the current policy and inflation backdrop.
The Treasury curve remains positively sloped across observed maturities, indicating a normal term structure. Long-end yields remain moderately restrictive. This week’s move reflected a parallel bearish shift in the Treasury curve, with the largest yield declines occurring in the long-end and little change to overall curve structure. Within the curve, the front-end was steepening. Rate volatility remains subdued, suggesting markets remain comfortable with the current policy and inflation backdrop.
Near-term policy expectations remain broadly consistent with the signal from the broader yield curve. Higher yields are modestly tightening financial conditions across the economy.
Growth & Credit:
Credit markets remain supportive, with tight high-yield spreads indicating continued confidence in economic growth and corporate fundamentals. The yield curve continues to support a constructive growth outlook.
Credit markets remain supportive, with tight high-yield spreads indicating continued confidence in economic growth and corporate fundamentals. The yield curve continues to support a constructive growth outlook.
Neutral RateThe long-term theoretical level at which interest rates neither stimulate nor restrict economic growth. More:
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, while long-term Treasury yields remain modestly above this level, suggesting investors continue to price a positive term premiumThe "extra" return investors demand for holding a long-term bond instead of a series of short-term ones. It acts as a safety buffer, compensating the lender for the increased risk that inflation or interest rates might change unexpectedly over a longer period. More and resilient nominal growth expectations.
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, while long-term Treasury yields remain modestly above this level, suggesting investors continue to price a positive term premiumThe "extra" return investors demand for holding a long-term bond instead of a series of short-term ones. It acts as a safety buffer, compensating the lender for the increased risk that inflation or interest rates might change unexpectedly over a longer period. More and resilient nominal growth expectations.
Model vs FOMC:
With the Federal Funds rate currently hovering at 3.62%, we can evaluate the true posture of monetary policy against multiple neutral baseline targets.
With the Federal Funds rate currently hovering at 3.62%, we can evaluate the true posture of monetary policy against multiple neutral baseline targets.
- Our Custom Model (4.20% Nominal r*): Because the actual policy rate of 3.62% is lower than our growth-derived target of 4.20%, monetary policy sits in a loose/expansionary posture, providing net stimulus to the economy.
- The FOMC Projections (3.10% Nominal r*): The Federal Reserve’s official Summary of Economic Projections benchmarks the longer-run neutral rateThe long-term theoretical level at which interest rates neither stimulate nor restrict economic growth. More at 3.10%. Against this official yardstick, the current 3.62% policy rate is restrictive. This confirms that the central bank is actively cooling down economic momentum by maintaining high borrowing costs.
The divergence reflects differing methodologies: our model is anchored to current trend growth, while the FOMC’s estimate reflects longer-run structural equilibrium conditions. As a result, policy can appear restrictive relative to the Fed’s long-run neutral rateThe long-term theoretical level at which interest rates neither stimulate nor restrict economic growth. More while remaining accommodative relative to current economic growth dynamics.
Valuation:
Equity risk premium is extremely compressed, indicating markets are pricing near-perfect conditions. Elevated yields alongside compressed ERP create a valuation headwind for equities.
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:
Risk appetite remains strong across both equity and credit markets, with compressed risk premia and tight credit spreadsIn the bond market, it is the difference in yield between a corporate bond and a "risk-free" government bond of the same maturity. It represents the extra interest investors demand to compensate for the risk that a company might default. More reflecting continued confidence in growth and financial conditions.
Risk appetite remains strong across both equity and credit markets, with compressed risk premia and tight credit spreadsIn the bond market, it is the difference in yield between a corporate bond and a "risk-free" government bond of the same maturity. It represents the extra interest investors demand to compensate for the risk that a company might default. More reflecting continued confidence in growth and financial conditions.
[Data Sources: FactSet.com | Investing.com | FRED | yahoo finance]
