Risk Appetite Positive, Growth Negative; Treasury Yield Curve 47 bps

Macro Regime The current macro environment is measured by several quantitative factors. The risk-appetite factor is +0.5941, while the growth factor is -0.4598 and the liquidity factor is -0.0863. Volatility contributes +0.2044. The Chicago Fed NFCI (National Financial Conditions Index) reads -0.5660, indicating loose financial conditions. The Bank for International Settlements (BIS) reports elevated systemic-risk indicators in Australia, Brazil, Canada and France, with debt-service ratios of 20 %, 29 %, 25 % and 21 % respectively. The higher debt-service ratios in Brazil (29 %) and Canada (25 %) are linked to greater sensitivity to the 10-year Treasury yield at 4.67 % and the 30-year mortgage rate at 6.66 %, which tightens domestic credit conditions.

Market Context The 10-year U.S. Treasury yield is 4.67 % compared with the 2-year yield at 4.20 %, creating a +47 basis-point (bps) curve slope. Breakeven inflation, the market-based estimate of one-year inflation, stands at 2.31 %. The 30-year mortgage rate is 6.66 %. Credit spreads are 263 bps for high-yield (below-investment-grade) bonds and 79 bps for investment-grade bonds. The Federal Reserve’s balance sheet totals $6,730,912 million, and the reverse-repo facility holds $0.175 trillion. Initial jobless claims are 203,000, and the University of Michigan consumer-sentiment index is 55.20. In the cryptocurrency market, Bitcoin trades at $78,063, down 0.26 % over the past 24 hours; Ethereum is at $2,438 and Solana at $102.75.

Upcoming Data (Watch) In the next 24 hours, several releases are scheduled:

• India’s gross-domestic-product (GDP) growth data at 10:30 UTC, with a forecast of 7.1 % and a prior reading of 7.8 %.
• German preliminary consumer-price index (CPI) at 12:00 UTC, forecast at 2.9 % and prior at 2.8 %.
• Euro-area flash CPI on September 1 at 09:00 UTC, forecast at 3.2 % and prior at 2.9 %. This European inflation figure is noted as a key reference for assessing whether the recent rise in the risk-appetite factor can coexist with accelerating inflation in the region. A print above 3.2 % would contradict the current neutral regime’s tolerance for loose financial conditions.

Correction (Phase 623, 2026-09-27): this note gave the Federal Reserve's overnight reverse repo (ON RRP) usage as $0.175 trillion. The source series, FRED RRPONTSYD, is published in billions of dollars, so the correct figure for this date is $175 million. The stated figure was 1,000 times too large.