Liquidity Tailwind Nears Reversal Just As Markets Turn Optimistic
Market Commentary — April 11, 2026
This is an example of the daily market commentary that members receive every trading day. Each report includes key takeaways, a fully edited video and transcript, and a glossary of terms — delivered straight to your inbox. To get this content daily, become a member today.
Member Updates During The Week:
Key Takeaways
Credit Spreads Signal Risk-On Shift: CDX high-yield credit spreads contracted back toward 346, and the HYG rallied sharply last week, suggesting the market believes the worst of the geopolitical-driven risk repricing may be behind us — though the 2022 analog warns this relief could be temporary.
Liquidity Tailwind Set to Reverse Around Tax Day: Fed reserve balances surged to ~$3.2 trillion on a TGA drawdown to $700 billion, but tax-season inflows are poised to push the TGA back toward $1 trillion, draining reserves potentially to the $2.8–2.9 trillion range and tightening financial conditions in the coming week.
Oil Settling Into a Range as Implied Volatility Fades: Crude has pulled back from its spike above $112 into the $90–95 zone, with the 20-day EMA acting as support and the upper Bollinger Band as resistance. Implied volatility is declining as the market reprices from a news-driven shock into a narrowing range, with broader implications for equity multiples and financial conditions.
Video
Fully Edited Transcript By Claude (Can Make Mistakes)
Market Overview and Oil Price Action
Even though we haven’t touched base for probably two weeks now, not much has really changed in the marketplace. Yes, stocks are a little bit higher than where they were two weeks ago, but not by much. Oil prices, at least visually speaking, seem to have settled into this low $90 to $95 region — potentially forming a cup pattern after the one big move up to over $112, and now coming back down to around $95.
What’s clear is that the upper Bollinger Band is acting as resistance, while the 20-day exponential moving average appears to be acting as support. This is important because when we look at what happened this week in equities and other parts of the marketplace, you can clearly see that the market has moved beyond the 20-day exponential moving average. We even cleared the 50-day, and we even cleared the 200-day moving average this week. So we’ve cleared a lot of negative moving averages and have been able to advance beyond them. Whether or not we’re able to hold above them will be another question.
Oil Trend and Implied Volatility
I think the market, for the most part — even though you’re not really seeing oil prices say that the tensions in the Middle East are over or that the worst is behind us — you really can’t say that, in my view. We’re still in an uptrend. We haven’t really seen lower highs get put in yet, and we haven’t seen lower lows. Right now, the lows are still higher than the previous lows, and we’re still seeing higher highs. So to say that the oil market has seen some sort of major change in trend, I think it’s too early.
But what clearly stands out is that you are seeing oil implied volatility coming down, which I think is important. Oil implied volatility probably continues to come down because oil is likely going to start finding some sort of natural trading range. This was the kind of volatility that’s created around a repricing of risk and a repricing of markets around a major news event. Now we’re in a position where we’re trying to find a range that we’re settling into. Right now, that range is between $85 and $115, and we may find that it continues to condense into a range closer to $95 to $100. We’ll just have to keep an eye on that.
Credit Spreads and Equity Market Implications
This has a lot of big implications, because one of the key things that happened this week was that despite oil prices holding, you obviously saw stocks rally rather significantly. You saw the same thing with high-yield credit — the HYG had a pretty significant rally, although it gave back a good portion of it by the end of the week. But you can still see the HYG was sharply higher on all of last week.
I think this is telling us a lot about what the market’s thinking. The equity market and credit appear to be saying that the worst of all of this is behind us. This is reflected in the fact that you’re seeing high-yield credit spreads really come back down toward 346 on the CDX high-yield credit spread index. That’s an important indication, because the 370 area in the past is a level I’ve highlighted to members as the area where you can see spreads really begin to widen out or stop widening out. In fact, you saw that happen on a couple of occasions in this region.
When we broke out of that range in one period, we went much higher — much higher — and the fact that we’ve stopped for now is an indication perhaps that the market is thinking the worst is behind us. Although I will note something similar happened in 2022 — we know oil ended up going much higher and credit spreads eventually began to widen out again. So this is important to be aware of.
Credit Spreads, Earnings Yield, and Financial Conditions
When you look at the comparison between credit spreads and the S&P 500 earnings yield (which is the inverse of the P/E ratio), they follow each other really closely. So if credit spreads are contracting and financial conditions are easing, the earnings yield of the S&P 500 is going to go lower, multiples are going to expand, and the S&P 500 is going to go higher.
The fact that this week you saw oil basically trade lower but stay within that same band, with a pretty material contraction of credit spreads and the easing of financial conditions — it’s quite possible that part of what you’re seeing this week is the market thinking the worst is behind us. No one really knows. We’ll actually find out more this week as we see what happens with the peace talks.
Liquidity, Reserve Balances, and the TGA
The other thing that I think is really important to look at is that this week we saw liquidity really improve rather significantly. Reserve balances at the Fed rose to around $3.2 trillion, which was their highest level since early September. I don’t think this is going to be a newfound level of liquidity that’s likely to persist. One of the reasons is because we saw the TGA drop to around $700 billion.
This is tax week, and it means that the TGA is likely to rise anywhere between $300 to $400 billion before this week is over. That could push liquidity back to positions the TGA was at toward the end of October, which is going to drain reserve balances again and potentially push them back to the lower end of their trading range — potentially as low as $2.8 or $2.9 trillion.
So this little boost we’ve had in the equity market has likely been driven by two things: the easing of financial conditions due to some of the pressures the market is looking through when it comes to the war, and also the fact that a little bit of liquidity has come into the marketplace and loosened things enough that the market has been able to rebound potentially a little bit more than it probably otherwise would have.
Historical Tax-Season TGA Patterns
If this seasonal pattern around tax day persists — that we see a big jump in the TGA due to tax season — then it’s likely an indication that you’re going to see liquidity start coming out of the market. For example, in April 2022, the TGA was around $550 billion the week of April 13th, and by the following week (April 20th) it was up to $902 billion — nearly a $350 billion jump. In April 2023, the TGA went from around $88 billion to $265 billion the week after, about a $200 billion jump. That was during one of the many debt-ceiling challenges and government closures. Then in April 2024, the TGA was around $672 billion and jumped to $929 billion — about a $300 billion increase. And in April 2025, we went from around $315 billion all the way up to $630 billion, an increase of about $300 billion.
Right now, at around $700 billion, if we were to see a similar $300 billion jump, you would see the TGA probably rise back to about a trillion dollars or so by the time we get to next week’s TGA reading. That’s going to result in reserves probably slipping back below $3 trillion, and it’s probably going to be there for a while, at least based on the Treasury calendar.
Outlook
This means the liquidity that we’ve seen come into the market this past week is likely going to start exiting again, and that’s going to potentially be a drain on liquidity as we go through this week. It’s something to be aware of. Liquidity feeds into financial conditions as well, so financial conditions could begin to tighten this week. I wouldn’t be surprised — unless we get some sort of major breakthrough in the peace talks over the week that allows oil to slip to lower levels. But at this point, it’s too early to say that. At least based on the technicals, it looks like oil is trying to find a trading range in that $90 to $95 region. If there’s positive talk, maybe we see oil slip back into the mid-$80s, but we’ll just have to see how that continues to play out.
Have a great week, and we’ll see you again soon.
Defined Terms and Jargon
Bollinger Band: A technical indicator consisting of a moving average with upper and lower bands set a certain number of standard deviations away, used to identify overbought and oversold conditions.
20-Day Exponential Moving Average (EMA): A short-term trend indicator that gives more weight to recent prices, often used to identify near-term support and resistance levels.
Implied Volatility: The market’s forecast of the likely magnitude of a security’s price movement, derived from options pricing. Declining implied volatility suggests the market expects a calmer, more range-bound environment.
Credit Spreads (CDX High Yield): The difference in yield between high-yield corporate bonds and risk-free government bonds. Narrowing spreads indicate improving risk appetite; widening spreads signal stress.
Earnings Yield: The inverse of the price-to-earnings (P/E) ratio, calculated as earnings per share divided by the stock price. It moves inversely with equity valuations — a lower earnings yield implies higher multiples.
TGA (Treasury General Account): The U.S. Treasury’s operating cash balance held at the Federal Reserve. When the TGA rises (e.g., during tax season), it drains liquidity from the banking system; when it falls, liquidity is released.
Reserve Balances: Cash held by commercial banks on deposit at the Federal Reserve. Higher reserve balances generally indicate more liquidity in the financial system, which can support asset prices.
Financial Conditions: A broad measure of how easy or tight it is to borrow and invest, influenced by credit spreads, interest rates, equity prices, and the dollar. Easing conditions tend to support risk assets.
Disclaimer
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.