How To Macro (Part 3)
Policy, Liquidity and the Yield Curve
Once I have a sense of the regime, the next thing I want to understand is the policy backdrop.
Macro is not just about what is happening in the economy. It is about how policymakers are likely to respond, how markets price that response, and how the price of money changes behaviour. This is why I spend so much time thinking about liquidity and the yield curve.
The yield curve is not a magic recession signal. I think of it more as a live map of policy pressure. The front end tells me what the market thinks central banks will do. The long end tells me something broader, growth expectations, inflation risk, fiscal pressure, term premium, and demand for safety.
So the question is not simply whether yields are rising or falling. The better question is why they are moving, which part of the curve is moving, and what that move tells me about the regime.
First make sure you are comfortable with the below prior parts
