Causal implications · Liquidity Regime · 2026-05-13

    US Liquidity Regime B: elevated funding stress, modest balance-sheet support

    HA·C:M
    Regime read

    State B: funding stress elevated (69.2) with only moderate balance-sheet cushion (54.2). Repo stress and net liquidity dominate. With HY OAS at 2.82, 2s10s at +0.46, DXY 118.0, and the 2Y at 3.95, expect tighter credit and a firmer USD as front-end rates reprice.

    Transmission channels (asset · direction · mechanism)
    UST 2Y
    ▲higher
    Funding stress + real-rate pressure lift expected policy path at the front end
    magnitude uncertain1m
    UST 2s10s
    -flattens
    Front-end reprices to policy/risk faster than long-end, compressing the curve
    magnitude uncertain1m
    HY OAS
    ▶◀widens
    Funding constraints raise intermediary risk-bearing costs, lifting high-yield risk/illiquidity premia
    magnitude uncertain3m
    IG OAS
    ▶◀widens
    Dealer balance-sheet strain and tighter funding widen investment-grade spreads
    magnitude uncertain3m
    S&P 500
    ▼lower
    Higher discount rates and tighter intermediary leverage under stress depress equity valuations
    magnitude uncertain1d
    USD broad (DTWEXBGS)
    ▲higher
    Tighter US policy/funding and risk-off raise dollar demand and unwind carry positions
    magnitude uncertain1d
    Exposed sectors / factors
    Financials (funding-sensitive)Consumer Discretionary (rate-sensitive)Energy (supported by $101 oil)Small Caps/high beta
    What confirms it
    • ▲HY OAS moves above 3.2
    • ▲IG OAS widens above 1.15
    • ▲2s10s flattens below 0.30
    • ▲USD broad index breaks above 120
    • ▲Equities print negative 1–3m total return
    What would invalidate it
    • ▼HY OAS compresses to ≤2.6
    • ▼Curve steepens above 0.60
    • ▼USD broad falls below 116
    • ▼VIX declines below 14 while credit remains tight

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