Connection 1: Fed Net Liquidity (FED_NET_LIQUIDITY) → Risk Assets

Fed Net Liquidity (FED_NET_LIQUIDITY) = WALCL - TGA (WTREGEN) - RRP (RRPONTSYD)

When Net Liquidity rises, risk assets tend to follow (4-6 week lead). When Net Liquidity falls, risk assets tend to struggle.

Mechanic: More liquidity = more fuel for buying, lower funding costs, increased risk appetite.

Thresholds:

• Rising 4W trend + above prior lows = bullish
• Falling 4W trend + breaking prior lows = bearish
• Rate of change matters more than level

Connection 2: MOVE → Leverage Capacity

MOVE Index (MOVE) measures Treasury volatility. It controls how much shadow banks can leverage.

Thresholds:

• MOVE < 80: Maximum leverage capacity, bullish for risk
• MOVE 80-120: Normal, moderate leverage
• MOVE > 120: Deleveraging forced, bearish for risk
• MOVE spikes >15 points/day: Immediate warning

Mechanic: Shadow banks use Treasuries as collateral. When Treasury volatility rises, collateral values are uncertain, leverage must be reduced.

The Interaction:

Fed Net Liquidity (FED_NET_LIQUIDITY) provides base liquidity. MOVE determines the multiplier:

• Rising liquidity + low MOVE = maximum bullish
• Rising liquidity + high MOVE = liquidity can't multiply
• Falling liquidity + low MOVE = some support from leverage
• Falling liquidity + high MOVE = maximum bearish