Causal implications · Liquidity Regime · 2026-05-17

    US Liquidity Regime B: elevated funding stress, partial balance‑sheet offset

    HA·C:M
    Regime read

    Funding pressure is elevated (68.9) while balance‑sheet support is only partial (57.6). With HY OAS at 2.76 and VIX 17.3, risk pricing looks tight even as DXY sits near 118. A 10Y yield at 4.47 with a 2s10s of 0.5 leaves room for curve‑flattening if stress spills into repo and credit.

    Transmission channels (asset · direction · mechanism)
    UST 2Y
    ▲higher
    Higher real‑rate path and policy expectations lift front‑end yields
    magnitude uncertain1m
    UST 10Y
    ▼lower
    Balance‑sheet support compresses term premium and lowers long yields
    magnitude uncertain3m
    UST 2s10s
    -flattens
    Funding stress triggers flight‑to‑liquidity; long end outperforms the front end
    magnitude uncertain1m
    HY OAS
    ▶◀widens
    Tighter funding and intermediary constraints raise the excess bond premium
    magnitude uncertain3m
    S&P 500
    ▼lower
    Higher liquidity risk premia and tighter funding raise discount rates; hawkish policy shocks depress equities
    -1.00 pct return per 25bp shock1d
    USD broad
    ▲higher
    Dollar funding stress and higher US real rates support USD appreciation
    magnitude uncertain1m
    Exposed sectors / factors
    Small‑cap equitiesRegional banksLeveraged loansHigh‑yield energy issuersEM USD borrowers
    What confirms it
    • ▲HY OAS widens above 3.5
    • ▲VIX breaks above 20
    • ▲DXY pushes above 120
    • ▲2s10s flattens by ≥25bp from here
    • ▲C&I loan growth slows materially
    What would invalidate it
    • ▼HY OAS compresses below 2.5
    • ▼VIX falls below 15
    • ▼USD retreats below 115 on DXY
    • ▼10Y yield rises above 4.8% without front‑end repricing (bear‑steepening)
    • ▼S&P 500 makes new highs on falling real yields

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