Synthesises Federal Reserve liquidity measures, money supply, real-rate signals and SOFR positioning to assess the current US monetary and liquidity regime.

US Liquidity and Monetary Conditions

Regime Assessment:

Regime: Expansionary / Risk-Positive
Regime Confidence Index: Low Confidence
Stability: Fragile

Why This Regime:

The dominant drivers for this assessment are the Federal Reserve Liquidity Composite (1), indicating a strong Expansion, and the M2 Money Supply signal (2), which is currently Bullish.
Dynamic weighting prioritised the Federal Reserve Liquidity Composite (1) and M2 Money Supply (2) due to their cyclical time horizons and medium aggregation weights. The 5-Year ERIS SOFR Swap (3), also with a medium weight, supports a "Normal" market state.
The US 10-year real yield signal (4) was downweighted to a low aggregation weight. This was due to its low conviction and mixed interpretation confidence, stemming from an internal conflict with its explicit methodology. The SOFR-3M futures signal (5) also received a low weight due to its tactical horizon and low conviction.

Alignment & Tensions:

The strong expansionary call from the Federal Reserve Liquidity Composite (1) reinforces the current bullish posture of the M2 Money Supply signal (2). Both SOFR positioning signals (5)(3) further align by indicating "Normal" market conditions without clear stress or reversal risks.
Tensions exist with the US 10-year real yield signal (4), which suggests restrictive monetary conditions. The Federal Reserve Liquidity Composite (1) itself carries an internal conflict and mixed interpretation confidence. Additionally, the M2 Money Supply signal (2) is projected to shift from bullish to neutral.
These tensions do not overturn the regime call. The real yield signal's counter-narrative is significantly downweighted due to its inherent methodological conflict and low confidence. The dominant and more direct liquidity indicators outweigh this particular tension.

Scenario Balance:

Dominant scenario: Liquidity conditions are expected to continue expanding, driven by ongoing declines in Overnight Reverse Repo (ON RRP) usage and stable reserve balances (1).
Primary upside risk and trigger: Further strong inflows into reserves or a re-acceleration in M2 growth beyond current levels, amplifying the expansionary trend (1)(2).
Primary downside risk and trigger: A significant and sustained rise in ON RRP usage, or a reversal in Federal Reserve asset contraction, could quickly tighten liquidity conditions (1).

What Would Change the Regime:

A significant and sustained rise in Overnight Reverse Repo (ON RRP) facility usage (1).
A sustained drop in the 3-month M2 growth rate below 1.0% (2).
Real yields increasing significantly above trend, indicating further tightening and removing the current signal's ambiguity (4).

Inputs

Federal Reserve Liquidity Composite Signal

Signal Summary:

The Federal Reserve Liquidity Composite (1) indicates a strong Expansion regime as of 2026-01-31, with a composite score of 2.297.
This reflects a substantial easing of liquidity conditions, despite some underlying tensions.
Conviction Band: Low | Interpretation Confidence: Mixed Signals | Internal Conflict Flag: Yes.

Key Dynamics:

The composite's strong expansion is primarily driven by bullish signals from reserve balances and significantly declining Overnight Reverse Repo (ON RRP) usage (1).
Federal Reserve total assets continue to show bearish contraction, providing a material offset to the other components (1).
M2 money supply currently registers as Neutral due to missing data, contributing neutrally to the composite (1).
The signal transitioned from Neutral in December 2025 to a strong Expansion in January 2026, indicating a notable positive inflection.
Conditional Invalidation: A significant and sustained rise in Overnight Reverse Repo (ON RRP) facility usage would invalidate this easing liquidity interpretation.

Scenario Balance:

Base Case dominant: Liquidity conditions continue to expand, supported by ongoing declines in ON RRP usage and stable reserve balances.
Upside secondary: Further strong inflows into reserves or an acceleration in M2 growth beyond current levels, amplifying the expansionary trend.
Downside residual: A reversal in the decline of Fed assets, or a resurgence in ON RRP usage, could quickly tighten liquidity.

Time Horizon & Aggregation:

Time Horizon: Cyclical (months), reflecting the monthly aggregation of underlying monetary components.
Aggregation Weight Hint: Medium, as despite mixed internal signals, the overall expansionary regime represents a significant shift in macro liquidity conditions.

Macro Relevance:

Macro dimension informed: Liquidity.
Cycle position: This strong liquidity expansion often supports early-to-mid cycle activity, potentially easing financial conditions and fostering risk-on sentiment.
Typical interaction with other macro signals: Strong liquidity expansion typically correlates positively with demand signals and risk asset performance, and can precede shifts in credit conditions (2).

Data & References:

M2 Money Stock (FRED), latest value 2025-11-30 (1).
Total Assets of the Federal Reserve (FRED), latest value 2026-01-31 (1).
Reserve Balances with Federal Reserve Banks (FRED), latest value 2026-01-31 (1).
ON Reverse Repo usage (FRED), latest value 2026-01-31 (1).
The most influential datapoints are the significantly negative (inverted positive) YoY and 3M changes in ON RRP usage.
Additional public datasets that would improve depth or reliability include the SOFR 3M (3) and 5Y (4) CoT signals to capture market-implied liquidity, and the Credit Spreads signal (5) for financial conditions impact.

Federal Reserve Liquidity Composite Signal

M2 Money Supply Signal

Signal Summary:

The M2 Money Supply signal currently indicates a Bullish liquidity regime as of 2025-11-01, driven by positive 3-month momentum. However, this state appears transient, with the signal projected to transition to Neutral in 2025-12-01.
Conviction Band: Medium, Interpretation Confidence: High Confidence, Internal Conflict Flag: No.

Key Dynamics:

The current Bullish classification for 2025-11-01 stems from the 3-month change in M2 Money Stock (M2SL) being 1.12%, which is just above the 1.0% acceleration threshold (1).
The year-over-year growth rate stands at 3.44%, which is below the 6.0% high growth threshold (1).
Momentum indicates weakening, as the 3-month change is projected to drop to 0.79% for 2025-12-01, causing a shift to a Neutral regime.
Conditional Invalidation: A sustained drop in the 3-month M2 growth rate below 1.0% would invalidate the Bullish signal, moving it to Neutral or Bearish if further deceleration occurs (1).

Scenario Balance:

Base Case dominant: Neutral liquidity conditions with moderating momentum are expected to prevail as the 3-month growth rate normalizes.
Upside secondary: M2 3-month momentum re-accelerates above 1.0%, or year-over-year growth exceeds 6.0%.
Downside residual: M2 year-over-year growth falls below 2.0%, or 3-month momentum drops below -1.0%, indicating significant liquidity contraction (1).

Time Horizon & Aggregation:

Time Horizon: Cyclical (months), reflecting the medium-term impact of money supply trends on economic activity and asset markets.
Aggregation Weight Hint: Medium, given M2 is a foundational liquidity indicator but its current Bullish signal is fragile and near a regime shift.

Macro Relevance:

This signal primarily informs the Liquidity dimension of the macro environment.
The transition from Bullish to Neutral suggests a shift from an expansive to a more stable or moderately contracting liquidity phase, potentially signaling a mid-to-late cycle liquidity environment.
It typically interacts with other macro signals by influencing risk-on/off sentiment, particularly for metals and cyclical assets, and serves as an input to broader liquidity composites (1).

Data & References:

M2 Money Stock (FRED: M2SL), latest observation 2025-11-01.
The `M2SL_YoY` (3.44%) and `M2SL_3Month_Change` (1.12%) values were most influential for the current Bullish state.
Additional public datasets that would improve depth or reliability include the velocity of M2 money stock and commercial bank credit growth.

M2 Money Supply Signal

Real Interest Rate Trend Signal

Signal Summary:

The US 10-year real yield signal is currently classified as Bearish as of 2026-01-01 (1).
This indicates a state of tightening or restrictive monetary conditions (1).
Conviction Band: Low, Interpretation Confidence: Mixed Signals, Internal Conflict Flag: Yes.

Key Dynamics:

The latest real yield value (1.85%) is slightly above its 6-month moving average trend (1.84%) as of 2026-01-01 (1).
The signal's classification into 'Bearish' suggests a restrictive stance, though the magnitude of the difference from its trend is small (1).
There is an internal tension as the explicit methodology would classify the current state as Neutral given the small deviation (0.01%) from the trend, yet the provided signal column states Bearish (1).
Conditional Invalidation: The signal would reverse to Bullish or Neutral if the real yield falls below its 6-month trend by more than 0.05% or moves within the ±0.05% neutral band (1).

Scenario Balance:

Base Case dominant: Real yields remain marginally above trend, sustaining a Bearish signal based on the current classification mechanism.
Most plausible upside risk and trigger: Real yields soften, falling back into the neutral band (within ±0.05% of trend) or below it, triggered by slowing economic data or easing inflation expectations.
Most plausible downside risk and trigger: Real yields increase significantly above trend, indicating further tightening, potentially driven by persistent inflation or robust growth surprises.

Time Horizon & Aggregation:

Time Horizon: Cyclical (months), reflecting the 6-month moving average used for trend identification (1).
Aggregation Weight Hint: Low, due to the identified internal conflict and resulting mixed interpretation confidence.

Macro Relevance:

This signal primarily informs the Liquidity and Monetary Conditions macro dimension (2).
It helps gauge the true cost of capital and the stance of monetary policy, typically relevant for mid-to-late cycle analysis.
Interacts with inflation expectations and growth signals, indicating if real returns are rising (restrictive) or falling (accommodative) for broader asset valuations.

Data & References:

US 10-Year Treasury Inflation-Indexed Security (DFII10), latest value 1.85% as of 2026-01-01 (1).
The 6-month moving average of DFII10 (Trend) at 1.84% is most influential for the current state (1).
Additional public datasets that would improve depth or reliability: 5-Year TIPS real yield, and market-implied inflation expectations from breakeven rates.

Real Interest Rate Trend Signal

SOFR 3M Individual Market Analysis

Signal Summary:

SOFR-3M futures currently exhibit balanced positioning with a "Normal" overall state. The latest data indicates a sustained "Long_Reduction" in speculative positions, leading to a "Balanced_Short_Bias" market structure without clear reversal risks (1).
Conviction Band: Low, Interpretation Confidence: High Confidence, Internal Conflict Flag: No.

Key Dynamics:

Net speculative positioning stands at -4.5% of Open Interest (OI) with a z-score of 0.08, while hedger net positioning is 4.6% OI with a z-score of -0.02 (1).
Four-week flow shows a significant "Long_Reduction" of -4.1, indicating continued unwinding of long speculative positions (1).
No extreme positioning or active reversal flags (e.g., squeeze, exhaustion, or deep hedger pressure) are present within the signal (1).
Conditional Invalidation: A material increase in speculative z-scores into extreme territory (e.g., >2 or <-2) or the emergence of explicit squeeze/exhaustion risk flags.

Scenario Balance:

Base Case dominant: The market maintains a "Balanced_Short_Bias" with continued long reduction, consistent with a "Normal" state and absence of strong reversal signals (1).
Most plausible upside risk: A significant and sustained reversal in the 4-week flow to strong net long building, possibly driven by shifting rate cut expectations.
Most plausible downside risk: Renewed short selling by speculators, pushing net positioning further negative and activating explicit bearish reversal flags.

Time Horizon & Aggregation:

Time Horizon: Tactical (weeks). The signal, based on weekly CoT data, is best suited for identifying short-to-medium term shifts in market positioning and sentiment (1).
Aggregation Weight Hint: Low. The signal's current neutral and normal state, coupled with low conviction, suggests limited immediate impact on broader macro composites.

Macro Relevance:

Macro dimension informed: Liquidity, Sentiment. SOFR futures positioning provides insight into market expectations for short-term interest rates and underlying financial conditions (1)(2).
Cycle position: Mid-cycle, reflecting ongoing adjustments to monetary policy expectations.
Typical interaction: This signal can amplify or temper other liquidity and monetary policy signals, especially when positioning becomes extreme, potentially flagging crowded trades in rates (2).

Data & References:

CFTC Commitment of Traders (CoT) report for SOFR-3M futures, latest observation date: 2026-01-20 (1).
Datapoints most influential: Spec_Net_%OI (-4.5), Hedger_Net_%OI (4.6), Flow_4w (-4.1), and the synthetic_state (Normal) (1).
1–2 additional public datasets that would improve depth or reliability: Daily SOFR futures price data for price-positioning alignment; Federal Reserve effective federal funds rate for context on short-term policy rates (3).

SOFR 3M Individual Market Analysis

SOFR 5Y Individual Market Analysis

Signal Summary:

The 5-Year ERIS SOFR Swap signal shows a balanced long bias in positioning as of 2026-01-20 (1). Overall conditions are "Normal" with no clear reversal risks present (1).
Conviction Band: Medium | Interpretation Confidence: High Confidence | Internal Conflict Flag: No.

Key Dynamics:

Speculative net positioning is +17.9% of Open Interest, balanced by hedgers at -17.9% of Open Interest (1).
Both speculative (0.85) and hedger (-0.87) z-scores indicate moderate long bias without extreme stretch (1).
Four-week flow is a minimal +0.6, labeled as "Long_Build", suggesting very modest accumulation (1).
Conditional Invalidation: A sustained shift to strongly negative 4-week flow, indicating significant long unwinding, would reverse this interpretation.

Scenario Balance:

Base Case dominant: Current balanced long bias continues given the "Normal" synthetic state and absence of immediate reversal signals (1).
Upside secondary: Increased speculative conviction leading to stronger long accumulation and upward trend continuation. Triggered by a significant increase in 4-week flow.
Downside residual: A notable shift towards hedger-led selling pressure or substantial speculative long unwinds. Triggered by negative 4-week flow or activated bearish reversal risk flags.

Time Horizon & Aggregation:

Time Horizon: Tactical (weeks), as CoT data is weekly and often highlights short-to-medium term positioning and flow shifts (1).
Aggregation Weight Hint: Medium, due to the clear but non-extreme directional bias and the absence of high-conviction reversal warnings.

Macro Relevance:

Macro dimension informed: Liquidity, interest rate expectations, and sentiment (1).
Cycle position: Mid-cycle, reflecting stable but not overly aggressive positioning.
Typical interaction with other macro signals: This signal provides insight into market expectations for future interest rates and liquidity conditions, complementing broader Fed Watcher or monetary policy signals (1).

Data & References:

5 YEAR ERIS SOFR SWAP - CHICAGO BOARD OF TRADE data, latest observation 2026-01-20 (1).
Key influential data points are `Spec_Net_%OI`, `Hedger_Net_%OI`, `Spec_zscore`, `Hedger_zscore`, and `Flow_4w`.
Additional public datasets that would improve depth or reliability: CME Group's SOFR futures volume data, Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) for lending conditions.

SOFR 5Y Individual Market Analysis