Value Investor

The benchmark interest rate for dollar-denominated loans and derivatives, replacing LIBOR. Based on actual overnight Treasury repo transactions. Tracks very closely to the Fed Funds rate. Rising SOFR = tightening financial conditions. SOFR spiking above Fed Funds = short-term funding stress (repo market squeeze). Used to price trillions in floating-rate debt, mortgages, and swaps.

S&P 500 earnings yield (inverse of PE) minus the 10Y Treasury yield. Measures the extra return stocks offer over risk-free bonds. Positive ERP (above 2%) = stocks compensate for risk, normal conditions. Near zero or negative ERP = bonds yield as much or more than stocks — historically rare and signals stocks are expensive relative to bonds. A negative ERP doesn't mean sell immediately, but it means the margin of safety is thin.

Plots yields from short-term (1M) to long-term (30Y) Treasuries. How to spot inversion: if the left side of the curve (short maturities like 2Y, 3M) is higher than the right side (10Y, 30Y), the curve is inverted — the line will slope downward left to right. A normal curve slopes upward (long bonds pay more). Compare "Current" vs "1 Month Ago" and "1 Year Ago" lines to see how quickly conditions are shifting. Every US recession since 1970 was preceded by an inverted yield curve.

The most-watched yield curve measure. Negative = inverted (recession warning). Un-inversion (going positive after being negative) is historically when recession risk is highest. Currently used in the Recession Dashboard with 25% weight.

The Fed's preferred recession signal — 10-year yield minus 3-month T-bill yield. Negative = inverted, strong recession predictor. Considered more reliable than the 10Y-2Y spread because the 3M rate directly reflects current Fed policy. The NY Fed's recession probability model is built on this spread. Below -0.5% = deep inversion, high recession probability within 12 months. Above +1.0% = healthy, normal curve.

The extra yield investors demand for corporate bonds over risk-free Treasuries. HY OAS (High Yield Option-Adjusted Spread) measures junk bond risk premium; BBB spread measures the lowest investment-grade tier. HY OAS below 3% = risk-on complacency. Above 4.5% = stress building. Above 6% = crisis-level fear. When both spreads widen together, it signals broad credit tightening — bad for stocks, especially high-debt companies. Narrowing spreads = risk appetite returning.

Moody's AAA = highest quality corporates (Apple, Microsoft-grade). BAA = lowest investment-grade tier (one notch above junk). The gap between them is the key signal: widening gap = flight to quality, investors dumping lower-grade debt (credit stress). Narrowing gap = confidence returning, risk appetite healthy. BAA-AAA spread above 2% = elevated credit concern. Watch the BAA line — if it spikes while AAA stays flat, it means weaker companies are getting priced for trouble.

Published every Friday by the CFTC, showing how different types of futures traders are positioned. Speculators (hedge funds, asset managers) are trend-followers — they profit from price moves. Commercials (hedgers, dealers) are the "smart money" — they use futures to hedge real business exposure and are often contrarian to speculators.

Net Speculator = longs minus shorts held by speculators. Positive = speculators are net long (bullish). Negative = speculators are net short (bearish).

Net Commercial = longs minus shorts held by commercials. Usually the mirror image of speculators.

Weekly Change = change in net speculator position from the prior week. Large shifts signal momentum in positioning.

Z-Score = how extreme the current positioning is vs the last ~52 weeks. Z > +2 (green) = speculators are at extremely bullish levels — contrarian bearish signal (crowded long). Z < -2 (red) = speculators are at extremely bearish levels — contrarian bullish signal (crowded short). -1 to +1 = normal range. Extreme readings don't mean an immediate reversal, but they flag elevated risk of a positioning unwind.

How to use for rates: If speculators are record-short 10Y Treasury futures (Z < -2), they're betting heavily on higher yields. A surprise dovish shift could trigger a violent short squeeze (yields drop, bond prices spike). For equities: record-long S&P 500 futures (Z > +2) means the trade is crowded — any sell catalyst gets amplified as longs unwind.

The difference between the nominal 10Y yield and the 10Y TIPS yield. Represents the market's expected average annual inflation over 10 years. Above 2.5% = inflation concerns rising. Below 2.0% = disinflation expectations. The Fed targets 2%.

Treasury Inflation-Protected Securities yield — the guaranteed real return above inflation. Positive real yields mean bonds compete with stocks for returns. Negative real yields push investors toward risk assets. Higher real yields = tighter financial conditions.

Average US fixed mortgage rates from Freddie Mac's weekly survey. Historically, the 30Y rate runs 1.5-2% above the 10Y Treasury yield — that gap is the "mortgage spread." Below 5% = historically cheap (stimulative for housing). 5-6.5% = normal range since 2023. Above 7% = restrictive, slows home sales and refinancing significantly. The 15Y rate is typically 0.5-0.7% below the 30Y. If the gap between 30Y and 15Y widens beyond 1%, it signals lenders see higher long-term risk. Mortgage rates lag the 10Y yield — when the 10Y drops, mortgage rates follow with a delay of weeks to months.