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Intuition behind different indicators
NFCI - NATIONAL FINANCIAL CONDITIONS INDEX
Note y axis is inverted.
Rising NFCI here suggests loosening of financial conditions. Btc outperform in loose conditions.
DRTSCILM - NET % OF BANKS TIGHTENING LENDING STANDARDS
Note y axis is inverted.
This tracks changes in the willingness of banks to lend, where tightening lending standards is indicative of caution, whereas looser lending standards suggest economic confidence.
Here the graph is inverted - a rise shows improving willingness to lend and a fall shows tighter lending standards.
HYG
Real time proxy for demand of junk bonds which is a good proxy for risk appetite in the market. Demand for junk bonds is correlated with the rest of the risk curve, with Bitcoin tending to outperform during periods of strength for HYG, and vice-versa.
BAMLH0A0HYM2 - HY ICE CREDIT SPREADS
Note y axis is inverted.
This measures the premium demanded by investors over government bonds. As one would imagine, wider credit spreads mean that more yield is being demanded to invest in junk bonds vs safe bonds, which itself is suggestive of risk in the economy. Narrow spreads, meanwhile, are indicative of confidence.
The graph is inverted such that the peaks are the tightest spread. If credit spreads are narrow, risk appetite is high, which means assets further out the risk curve benefit. This is also suggestive of expansion vs contraction in the business cycle, where widening spreads would be suggestive of downturn and narrowing spreads of continued growth.
USMNO/USNMNO - US MANUFACTURING ORDERS / NON-MANUFACTURING ORDERS
Manufacturing New Orders growing faster than Non-Manufacturing New Orders is generally indicative of early recovery in a business cycle, whereas late cycle dynamics are more heavily weighted towards services, largely driven by consumer spending and therefore this ratio would begin to contract, as Non-Manufacturing New Orders dominate.
USBC0I - US PMI
A composite of the Manufacturing and Services sectors in the US economy. Above 50 = expansion and below 50 = contraction.
T10YIE - 10-YEAR INFLATION BREAKEVENS
A market-based measure of average expected inflation over the next 10 years.
Bitcoin likes it very much when the average expected inflation rate has bottomed and is trending higher and it generally underperforms when 10-year inflation breakevens are declining.
Bitcoin also tends to front-run peaks in 10-year inflation breakevens by about 6-9 months, which in turn tend to peak after Global M2 YoY growth has peaked and is turning lower.
This measure also is useful for understanding what is likely to happen to financial conditions - tighter after peaks and looser after bottoms. The clearest correlation here is not to the downside but the upside: when breakevens have bottomed out and cycle higher, Bitcoin tends to do very well indeed.
DFII10 - 10-YEAR REAL YIELD
Note y axis is inverted
What is interesting here is that whilst there is not a strong correlation as real yields rise, there is a clearer correlation as real yields fall. Falling real yields tend to be supportive of Bitcoin, whilst rising real yields have occurred whilst BTC has outperformed and underperformed historically.
This one is not as key for mapping out the market cycle, but still worth keeping an eye on.
Intuition behind different indicators
NFCI - NATIONAL FINANCIAL CONDITIONS INDEX
Note y axis is inverted.
Rising NFCI here suggests loosening of financial conditions. Btc outperform in loose conditions.
DRTSCILM - NET % OF BANKS TIGHTENING LENDING STANDARDS
Note y axis is inverted.
This tracks changes in the willingness of banks to lend, where tightening lending standards is indicative of caution, whereas looser lending standards suggest economic confidence.
Here the graph is inverted - a rise shows improving willingness to lend and a fall shows tighter lending standards.
HYG
Real time proxy for demand of junk bonds which is a good proxy for risk appetite in the market. Demand for junk bonds is correlated with the rest of the risk curve, with Bitcoin tending to outperform during periods of strength for HYG, and vice-versa.
BAMLH0A0HYM2 - HY ICE CREDIT SPREADS
Note y axis is inverted.
This measures the premium demanded by investors over government bonds. As one would imagine, wider credit spreads mean that more yield is being demanded to invest in junk bonds vs safe bonds, which itself is suggestive of risk in the economy. Narrow spreads, meanwhile, are indicative of confidence.
The graph is inverted such that the peaks are the tightest spread. If credit spreads are narrow, risk appetite is high, which means assets further out the risk curve benefit. This is also suggestive of expansion vs contraction in the business cycle, where widening spreads would be suggestive of downturn and narrowing spreads of continued growth.
USMNO/USNMNO - US MANUFACTURING ORDERS / NON-MANUFACTURING ORDERS
Manufacturing New Orders growing faster than Non-Manufacturing New Orders is generally indicative of early recovery in a business cycle, whereas late cycle dynamics are more heavily weighted towards services, largely driven by consumer spending and therefore this ratio would begin to contract, as Non-Manufacturing New Orders dominate.
USBC0I - US PMI
A composite of the Manufacturing and Services sectors in the US economy. Above 50 = expansion and below 50 = contraction.
T10YIE - 10-YEAR INFLATION BREAKEVENS
A market-based measure of average expected inflation over the next 10 years.
Bitcoin likes it very much when the average expected inflation rate has bottomed and is trending higher and it generally underperforms when 10-year inflation breakevens are declining.
Bitcoin also tends to front-run peaks in 10-year inflation breakevens by about 6-9 months, which in turn tend to peak after Global M2 YoY growth has peaked and is turning lower.
This measure also is useful for understanding what is likely to happen to financial conditions - tighter after peaks and looser after bottoms. The clearest correlation here is not to the downside but the upside: when breakevens have bottomed out and cycle higher, Bitcoin tends to do very well indeed.
DFII10 - 10-YEAR REAL YIELD
Note y axis is inverted
What is interesting here is that whilst there is not a strong correlation as real yields rise, there is a clearer correlation as real yields fall. Falling real yields tend to be supportive of Bitcoin, whilst rising real yields have occurred whilst BTC has outperformed and underperformed historically.
This one is not as key for mapping out the market cycle, but still worth keeping an eye on.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.