Macro Regime Transition Framework

Identifying regime transitions allows for timing adjustments in allocation and structural hedges.

To identify when markets are moving from one macro regime to another and why risk is often mispriced during those transitions.

Markets are usually well-adapted to the current regime and poorly prepared for the next one. The largest opportunities and risks emerge not within regimes, but during transitions between them.

• Growth and inflation trends relative to expectations
• Central bank reaction functions and communication shifts
• Yield curve behaviour and term premia
• Cross-asset correlations (rates, FX, equities, credit)

• Stable regimes produce consensus and compressed volatility
• Transitions break established relationships before new ones form
• Early regime changes often appear as “noise” or false signals before becoming dominant

• Central banks changing emphasis even without changing policy
• Yield curve behaviour diverging from growth narratives
• Cross-asset correlations becoming unstable or inconsistent
• Markets reacting more to second-order data than headline releases

• Positioning is optimised for the old regime
• Risk models extrapolate recent history
• Narratives lag structural change

This creates windows where risk is systematically under- or overestimated.

• Macro relationships remain stable despite apparent narrative change
• Policy reaction functions stay consistent across multiple data cycles