Signals
| Next FOMC | 🏦 2026-09-16 — Cuts: 14% | Hold: 58% | Hikes: 27% ◆ Current bias: Data-Dependent |
| Valuation | 🚨 Extreme compression: ERP 0.32% — equity risk premium is critically thin |
| Liquidity Flow | 🚨 liquidity contracting (Δ4W $-147B) — tightening financial conditions |
🏦 2026-09-16 — Cuts: 14% | Hold: 58% | Hikes: 27% ◆ Current bias: Data-Dependent
🚨 Extreme compression: ERP 0.32% — equity risk premium is critically thin
🚨 liquidity contracting (Δ4W $-147B) — tightening financial conditions
Fed Funds Futures Probabilities
| Meeting | -50bps | -25bps | No Change | +25bps | +50bps |
|---|---|---|---|---|---|
| Sep 16 | 0.0% | 14.2% | 58.4% | 27.5% | 0.0% |
| Oct 28 | 0.0% | 0.0% | 0.0% | 0.0% | 100.0% |
| Dec 09 | 0.0% | 0.0% | 14.3% | 75.3% | 10.4% |
| Jan 27 | 0.0% | 0.0% | 3.9% | 92.6% | 3.6% |
| Mar 17 | 0.0% | 0.0% | 12.8% | 66.2% | 20.9% |
| Apr 28 | 0.0% | 0.0% | 14.6% | 53.0% | 32.5% |
| Jun 09 | 0.0% | 0.0% | 0.0% | 39.3% | 60.7% |
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 | -2 bp |
| 10Y Treasury | +3 bp |
| 30Y Treasury | +6 bp |
| HY OAS | -3 bp |
| 10Y-2Y Curve | +5 bp |
| Net Liquidity | Δ4W $-147.1B |
Regime Changes
| Equity: Neutral → Risk-On |
Rates
| 3M | 6M | 1Y | 2Y | 5Y | 10Y | 30Y |
|---|---|---|---|---|---|---|
| 3.86% | 3.95% | 3.98% | 4.17% | 4.36% | 4.68% | 5.25% |
3.86%
3.95%
3.98%
4.17%
4.36%
4.68%
5.25%
Curve spreads
| Fed Policy | 31 bp |
| Recession | 82 bp |
| Neutral RateThe long-term theoretical level at which interest rates neither stimulate nor restrict economic growth. More (r*) estimate | 4.20% |
IG Credit
| AaaAaa represents the highest rung of investment-grade corporate debt, indicating top-level creditworthiness and the lowest default risk. More | 5.92% |
| 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 | 6.37% |
Equities
| S&P500 | 7785.76 |
| Forward PE | 20 |
| Earnings Yield | 5.00% |
| ERP | 0.32% |
Credit Spreads
| HY OAS | 267 bp |
| Corporate OAS | 80 bp |
| BBB OAS | 98 bp |
| CCC OAS | 1012 bp |
| Quality Buffer | 18 bp |
| Fallen Angel Penalty | 169 bp |
| Distress Premium | 745 bp |
Delta
| 2Y Δ | -2 bp |
| 5Y Δ | 1 bp |
| 10Y Δ | 3 bp |
| 30Y Δ | 6 bp |
| HY Δ | -3 bp |
Financial Risk & Volatility
| FSI | -0.77 |
| MOVE | 69.58 |
Liquidity (System Proxy)
| Fed Assets | $6.76T |
| Treasury Cash | $959.4B |
| Reverse Repo | $725.0M |
| Net Liquidity | $5.80T |
| Δ4W Net Liquidity | Δ4W $-147.1B |
Regime
| ERP | Extreme Compression |
| Credit | Stable |
| Financial stress | Calm |
| Banking system | Loose |
| Equity | Risk-On |
Interpretation
The Treasury curve remains positively sloped across observed maturities, consistent with a normal term structure and an economy still expected to expand over the medium term. Long-term yields continue to imply moderately restrictive financial conditions.
Against this broader curve structure, Treasury yields experienced a mixed repricing across maturities, reflecting a combination of policy, growth, inflation, and risk-premium adjustments.
Inflation expectations remain well anchored despite modest differences between near- and longer-term pricing. Treasury volatility remains subdued, consistent with relatively stable expectations for policy and inflation. The absence of material curve inversions reinforces the view that markets continue to price ongoing economic expansion rather than an imminent recession.
Fed Funds Futures broadly confirm the Treasury market’s modest upward repricing of the expected policy path, reinforcing the view that investors continue to anticipate a gradually restrictive policy stance rather than a material shift in the macroeconomic outlook.
The Treasury curve continues to support a constructive medium-term growth outlook.
Credit markets remain broadly constructive overall, although investors continue to demand a substantial premium from the weakest speculative borrowers.
The 5-Year Treasury closed at 4.36%, while High Yield Option-Adjusted Spreads finished at 267bp, leaving speculative-grade borrowers facing an estimated average borrowing cost of approximately 7.03%.
Credit differentiation within investment-grade markets remains limited, indicating investors continue to view higher-quality corporate balance sheetsA financial "snapshot" that reveals exactly what a company owns and owes at a specific moment in time. It follows the fundamental formula: Assets = Liabilities + Equity. By subtracting what is owed (liabilities) from what is owned (assets), the balance sheet shows the "book value" or the net worth belonging to the owners. More as fundamentally healthy. Refinancing conditions for lower investment-grade issuers remain broadly normal, with little evidence that markets are aggressively pricing downgrade risk. At the same time, distressed issuers continue to face materially higher financing costs, indicating investor caution remains concentrated in the weakest segments of the speculative-grade market rather than reflecting systemic deterioration.
Taken together, credit markets continue to distinguish sharply between stronger and weaker borrowers, suggesting investors remain comfortable assuming credit risk while avoiding the most financially fragile issuers.
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.
With the Federal Funds rate currently hovering at 3.63%, 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 3.63% 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 3.63% policy rate is restrictive. This confirms that the central bank is actively cooling down economic momentum by maintaining high borrowing costs.
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 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.
Spread Guide:
