Palanor: Capital Tightness

Overview

The Capital Tightness Index reads the capital window the way a mid-market operator experiences it — through the policy rate, the cost of borrowing in the corporate credit market, and the posture of the central bank's balance sheet. A reading near zero is a loose window; a reading near 100 is a window closing. The index is built to track the moments when refinancings, deal closes, and capital raises become materially harder.

Why these components

The Federal Funds rate sets the floor for everything. High-yield and investment-grade option-adjusted spreads price the marginal cost of capital for the operator who needs to raise. Reverse repo and the Fed balance sheet capture posture — accommodation or withdrawal. The dollar enters because tightening dollars are tightening capital globally, regardless of policy.

Methodology

Levels and spreads are z-scored against the 24-month baseline. Balance sheet posture is included as a 12-month percentage change. Components with a negative direction are sign-flipped: a growing balance sheet loosens the window, so it depresses the index. Weighted sum, logistic scaling. Reading bands: 0–25 loose, 25–50 normal, 50–75 tightening, 75–100 closed.

Interpretation

Distinct from the Palanor: Liquidity index — Liquidity reads the global dollar weather; Capital Tightness reads the operator’s specific window. A high Liquidity reading with a high Capital Tightness reading means capital is abundant in aggregate but unevenly accessible — typically because credit spreads have widened even though the central bank is accommodative. The divergence is informative.

Caveats

The index reads US conditions through US instruments. Operators with significant offshore funding may experience tightness differently. The index is also slower than equity-implied measures; widening credit spreads typically lag VIX moves by days to weeks.

Components & Weights

Every component, every weight. The 30-day spark shows how the underlying series has moved; the transform column shows how it converts to a comparable scale before weighting. Direction indicates whether rising values raise or lower the index.

Historical

24-month history of this index. The composite is recomputed daily; values are stored with timestamps.

References

• FRED — Federal Reserve Economic Data, St. Louis Fed. https://fred.stlouisfed.org/
• Atlanta Fed — Wage Growth Tracker and Sticky-Price CPI. https://www.atlantafed.org/research
• Cleveland Fed — Model-based inflation expectations. https://www.clevelandfed.org/our-research/indicators-and-data
• OECD — Composite Consumer Confidence Indicator. https://data.oecd.org/leadind/consumer-confidence-index-cci.htm
• CNN Business — Fear & Greed Index. https://www.cnn.com/markets/fear-and-greed
• Google Trends — interest over time. https://trends.google.com/