Macro Brief — February 25, 2026

Regime intact at 67% confidence. Growth accelerating, not stabilizing. Curve flattening but still positive. Credit spreads at cycle tights — complacent, not stressed. The two risks with real asymmetry: inflation expectations de-anchoring and a BoJ-sourced global bond selloff. Positioned front-end heavy, quality equities, underweight credit and gold.

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GDP printed 4.4% SAAR and the market's reaction was a shrug. That tells you where we are. Growth is accelerating, not stabilizing. Financial conditions are still in the easy quartile. The Fed is patient. This is the kind of setup where everyone agrees the fundamentals are fine — and that's exactly when you should be stress-testing the assumptions underneath.

The yield curve has been my anchor signal, and it's telling a more nuanced story than January. The 10Y-3M spread narrowed to 35bp, still positive, still expansion territory — but the loudest signal from last month is now moderate. The move was front-end led: 3-month yields held near the policy rate while the long end pulled back as term premium compressed after the GDP print, not on falling breakevens. This is the curve digesting a strong number, not rolling over. But a signal getting quieter deserves attention even when it's still saying the right thing.

Credit markets are where the complacency lives. Baa-10Y spreads at 101bp — the tightest quartile historically — with essentially zero velocity. SLOOS tightening eased from 6.5% to 5.3%, back in neutral. No stress. No defaults. The plumbing is functioning. But at 101bp, the market is pricing in perfection. In the 2013 Taper Tantrum, IG spreads widened 30-40bp within eight weeks. At current spread duration of roughly seven years, that kind of move turns a full year of IG carry negative in a single quarter. You're not getting paid for that risk. Move up in quality, shorten duration, and wait for better entry points.

Now here's the thing most U.S.-focused investors are missing: Japan. The 10Y JGB yield hit 2.24% this week, and USD/JPY is sitting at 155 with the carry trade fully extended. This has the structural fingerprint of the 2013 Taper Tantrum — a comfortable domestic backdrop with a monetary pivot brewing elsewhere. The difference is that in 2013, the catalyst was the Fed, which meant it was domestic, visible, and the market had time to adjust. This time the catalyst is the BoJ, and the transmission runs through channels that don't show up in FRED data until it's too late: carry trade unwinds, cross-currency basis blowouts, forced deleveraging across asset classes. The 1997 Asian Crisis is the secondary analog — external shocks create buying opportunities in the U.S., but only if the labor market holds. With China's OECD CLI at 98.8 and decelerating, the global growth cushion is thinner than it was then.

The other risk is closer to home and more mechanical. Michigan inflation expectations at 2.42%, with the Fed's reaction function flipping from patient to pre-emptive at 3.0%. That's 58 basis points of cushion. Watch 5Y5Y breakevens — they typically move before survey expectations, and any drift above 2.5% would be an early warning that the market is sniffing out what Michigan hasn't captured yet. A breach forces real yields higher through policy rate repricing, not just term premium. On current S&P valuations, a 50bp move in 10Y real yields translates to a 400-600 point drawdown. The transmission is fast and sequential: expectations breach, the Fed signals, the front end reprices 75-100bp, duration-sensitive equities de-rate, credit follows with a 2-4 week lag. This is the single fragile pillar that the entire regime sits on.

Labor market confirms stability — initial claims at 219,000, manufacturing employment flat. Not a near-term concern unless claims breach 300,000, at which point the regime skips straight to hard landing.

The barbell still makes sense, but the weights have shifted. Front-end Treasuries — 1-3 years, yielding above 4% — are the portfolio anchor. It's the one position that works whether the shock comes from inflation or from Tokyo. On the equity side, I want pricing power and earnings durability: industrials and secular tech over rate-sensitive growth. Neutral to slight overweight, but don't reach — VIX at 19.55 and credit at 101bp are not compensating you for aggression. Long duration and gold are both underweight. Gold is a stagflation hedge, and the primary risk scenarios here — inflation scare, BoJ shock — both drive real yields higher and the dollar stronger. Gold loses in both.

Bottom line: the expansion is intact and the data supports staying invested. But the character of the risks has shifted from symmetric to asymmetric, and the two scenarios with the most bite — inflation expectations de-anchoring and a Japan-sourced bond shock — are both outside the consensus view. Positioned for resilience, not acceleration.

Levels that would change the view: Michigan expectations at 3.0% · 5Y5Y breakevens above 2.5% · JGB 10Y at 2.5% confirmed by USD/JPY below 148 · Initial claims 4-week MA at 300,000