With the Fed all set to begin reserve management buying of T-bills (and, “if necessary,” short-end Treasurys), the dollar near the low- (weak) end of the range since 2022, credit spreads still tight and US equities on the brink of revisiting record highs, it’s small wonder professional investors view financial conditions as quite forgiving.

Like everything else in America, this is a K-shaped dynamic. Mortgage rates, while not punitive on a long-term look back, are high in the context of first-time homebuyers who were in high school or middle school the last time the 30-year fixed sported a six-handle. Credit card and HELOC rates are still elevated, and so on. Suffice to say if you’re on Main Street, you’re still feeling the squeeze.

But most measures of financial conditions — including the Fed’s own — suggest the environment’s every bit as conducive to risk-taking as current equity multiples would lead you to believe. Indeed, fund managers polled by BofA this month were running net 4% higher-than-normal risk levels, one of the only positive readings on that metric since the Fed started hiking rates in 2022.

When those same capital allocators were asked how they’d rate market liquidity conditions, a net 61% said they were positive.

As the figure above shows, that was the highest in more than four years.

The bank’s Michael Hartnett was keen to note that since the financial crisis, survey panelists “have only perceived liquidity conditions better than today” two other times: Early in 2021 and in September of that year, “when central banks were still buying large amounts of bonds every month.”

Dare I resort to the most clichéd of all market-related punchlines twice in two days? I dare: What could go wrong?