Yen Forwards, Funding Stress, and Rising Real Yields Point To Tighter Liquidity
Actionable Takeaways
Monitor real rates closely: Falling inflation expectations with stable nominal yields imply rising real rates, which historically pressure equities.
Watch the TIPS ETF versus the S&P 500: A renewed correlation could signal whether equities resume reacting negatively to higher real yields.
Prepare for yen strength: Forward markets and cross-currency basis swaps suggest growing odds of a stronger Japanese yen following BOJ communication.
Observations
The CPI report appears internally inconsistent, undermining confidence in the inflation outlook and limiting its usefulness for policy or market decisions. Meanwhile, declining inflation expectations alongside steady nominal yields are quietly pushing real rates higher, a dynamic that has