Core Viewpoint - The main theme of global asset allocation in the post-pandemic era is the "American exceptionalism," characterized by a lack of significant financial tightening despite the highest interest rate hike cycle since the 1970s, leading to questions about the real impact of these rate hikes on the economy and corporate operations [1][2]. Summary by Sections Resident Sector - The ratio of mortgage payments to disposable income is currently at 11.3%, lower than the 11.7% level at the end of 2019, indicating strong consumer spending from 2022 to 2024 [2]. Corporate Sector - The credit spread of corporate bonds has been declining since the second half of 2022, remaining at historical lows, which facilitates easy corporate financing. Profit growth has accelerated compared to pre-pandemic levels, and debt repayment metrics have improved [2][3]. Liquidity Environment - The liquidity premium in the U.S. has not reached extreme levels, indicating a generally loose liquidity environment. A significant risk event occurred in March 2023 with the Silicon Valley Bank (SVB) incident, but it was quickly addressed by the FDIC [2][3]. Debt Maturity Challenges - A significant issue arises as corporate bonds issued in 2020 will mature in large volumes by 2025, forcing companies to either refinance at higher costs or use cash reserves, which may lead to reduced capital expenditures [4][5]. Upcoming Liquidity Tightening - The second quarter of 2025 will see a historical peak in corporate debt maturities, with over $600 billion due, representing a 70% increase compared to the average for the second half of 2024. The average financing cost for these debts is estimated at 3.6%, while refinancing could increase costs by 190 basis points [5][6]. Potential Credit Spread Increase - The current liquidity environment is relatively fragile, and if it coincides with the debt maturity peak, there is a risk of a rapid increase in credit spreads. Historical data suggests that peaks in corporate bond spreads typically lag the last rate hike by about 24 months [6][7]. Federal Reserve's Balance Sheet Reduction - The liquidity buffer provided by the Federal Reserve's overnight reverse repurchase agreements (ONRRP) has significantly decreased, and the ongoing balance sheet reduction (QT) has led to a noticeable reduction in excess reserves within the banking system [7][8]. Debt Ceiling and Liquidity Risks - The approval of a new debt ceiling bill around mid-year could lead to a temporary tightening of liquidity. The U.S. Treasury has already utilized 70% of its "extraordinary measures" to maintain government operations, with a potential liquidity crunch expected around the "X-date" in June [8][9]. Market Expectations on QT - There are differing expectations in the market regarding the timing of the end of QT, with some Federal Reserve officials suggesting a pause until the debt ceiling issue is resolved. Delays in ending QT could further pressure liquidity [9]. Overall Market Outlook - The risk of tightening liquidity in the second quarter cannot be ignored, and U.S. equities may face another round of adjustments. Recent liquidity crises, such as the SVB incident, have shown that market reactions can be swift and significant [9].