# Session 32 Resume — Block 023 continuation

**Date:** 2026-07-23 (resume for next session)
**Status:** Block 023 partial — pre-block probes + Target 1 complete; Targets 2-4 deferred.

## What's locked from Session 31

**Pre-block probes (4/4 at Working+):**
1. March 2020 blowout diagnostic — direction-of-trade correction (basis is cost to carry traders, not free carry)
2. Persistent -25bp structural read — "permanent signal" + "constraint binds always"
3. Cross-currency spread JPY -25bp vs EUR -8bp — relative carry-trade scale + regulatory backstop
4. Term structure short-end widest — velocity = dealer balance-sheet *turnover*, not price volatility

**Target 1 (CIP mechanics) main material delivered:**
- No-arbitrage frame: forward = interest rate differential
- Negative basis = balance-sheet cost to dealers (SLR / leverage ratio), not arbitrageur capture
- Hedger A/L framing: Japanese pension fund sells USD/JPY forward, fair hedge cost = US Treasury yield − JPY rate, negative basis = 25bp extra cost
- BOJ exit second-order: rising JPY rates → less USD asset demand → less hedging demand → basis compresses (demand-side mechanism, NOT carry-trade side)
- BOJ unexpected shock: vol spike → dealer market-making stretched → short-tenor basis blows out first → term structure steepens

**Status transitions (new items in competence map):**
- CIP negative basis = balance-sheet cost: Untested → Working+
- Post-GFC structural basis = 24/7 constraint: Untested → Working+
- Cross-currency spread = relative carry-trade scale: Untested → Working+
- Term structure = balance-sheet turnover velocity: Untested → Working+
- BOJ exit second-order = demand-side compression: Untested → Working (pending Targets 2-4 reinforcement)

## What's pending in Block 023

**Open diagnostic probe re-attempt (paused mid-Session 31):**
- Setup: USD/JPY basis -22→-45bp, USD/EUR basis -9bp, JPY 1m -60bp / 5y -15bp
- Question: "Three things this tells you about what's happening in the dollar funding market"
- **RESUME PROTOCOL:** Before re-posing this probe, anchor Target 2 substrate (when/why CIP opens, the three signatures) — 2-3 sentence re-anchor per the 2026-07-23 process change.

**Targets deferred:**
- Target 2 (CIP deviations) — when/why they open. Three signatures: acceleration, cross-section break, term-structure distortion. 2008 + March 2020 anchors.
- Target 3 (UIP empirical failure) — the carry trade puzzle.
- Target 4 (basis diagnostic) — level + sign + velocity = USD funding stress read. Block 014 three-signal-layer diagnostic tie-in.

**Block 014 cold-recall re-drill queue:** three-signal-layer diagnostic (MBS-Treasury / SOFR-OIS / cross-currency basis) — to be exercised during Target 4.

## Cold-recall items NOT touched in Session 31 (re-drill queue for Session 32)

None new from this session. Block 014 carry-forward items (DTV 2018 term structure finding ✓ probed + three-signal-layer diagnostic pending Target 4) remain.

## Anki cards

None generated. Probes landed at Working+; main material Targets 2-4 are where the atomic card generation will land.

## Pre-reads

None new. Block 023 pre-reads (Kenen Ch. 1-4 + DTV 2017 + BIS Triennial 2022 FX swap section) already complete. Pre-reads remain valid for Targets 2-4.