# Session 33 Resume — Block 024 (FX central bank reaction functions)

**Date:** 2026-07-26 (assigned at Session 32 close)
**Status:** Block 023 closed. Block 024 (FX central bank reaction functions) queued.

## What's locked from Session 32 (Block 023)

**Block 023 fully closed at Working+ across all four targets:**

1. **CIP mechanics** (Target 1): no-arbitrage frame, hedger A/L framing, negative basis = balance-sheet cost (not arbitrageur capture).
2. **CIP deviations** (Target 2): three signatures — acceleration, cross-section break, term-structure distortion. 2008 + March 2020 anchors. Order of Fed facility activation = which layer of plumbing broke first.
3. **UIP empirical failure** (Target 3): carry trade puzzle. Three competing explanations (risk premium, peso, behavioral).
4. **Basis diagnostic** (Target 4): level + sign + velocity + cross-section + term structure. Three-signal-layer diagnostic (Block 014 tie-in). Diagnostic cap: basis is a *diagnostic*, not a *trade*.

**Load-bearing substrate distinction (load-bearing for Block 024):** carry trader vs hedged USD investor populations. Carry trader (unhedged) does NOT trade the basis. Hedged investor pays the basis as hedge cost. Carry trade unwind does NOT directly move the basis; basis move is side-effect via vol spike + dealer capacity contraction + general dollar strength.

**Diagnostic rule (carry trade vs basis):** carry trade unwind + basis blowout together = systemic; divergence = normal regime.

**10 atomic Anki cards pushed (note IDs 1785099068969-1785099069195):** two populations, carry trader doesn't trade basis, basis existing vs new hedge positions, systemic vs normal diagnostic, term-structure shape, three signatures of CIP opening, UIP failure mechanism, basis diagnostic vs tradeable, 2008 vs March 2020 comparison, three-signal-layer diagnostic.

**Reference file created:** `~/.hermes/skills/finance/macro-mentor/references/carry-vs-basis-population-distinction.md`

## What's pending in Block 024

**Status:** Block 024 (FX central bank reaction functions) — pre-reads not yet started.

**Topic scope (per coverage-tracker):** FX central bank reaction functions — what does the cross-currency basis diagnostic tell us about how the Fed/ECB/BOJ coordinate (or don't) when dollar funding stress hits? Specifically: when and how central banks intervene against persistent basis deviations.

**Pre-reads already assigned (Session 32 close):**
- McCauley + Schenk (2020) "Central bank swap lines and cross-border bank flows" (or earlier McCauley + Schenk 2018) — ~20 min
- Borio et al. (2016) "FX intervention and the global cycle" — abstract + intro — ~15 min
- ECB / Fed / BOJ official communications on dollar swap lines (2013, 2020 activations) — ~10 min
- Skip: Detailed mechanical FX option pricing (Block 029 territory), EM-specific FX intervention (Block 028 territory)
- **Total: ~45 min, [thematic].**

## Carry-forwards into Block 024

1. **Three-signal-layer diagnostic (Block 023 Target 4)** — Block 024 should apply to which CB facility activation = which layer broke. The diagnostic cap that the basis is a diagnostic, not a trade, is the load-bearing substrate for the entire Block 024.
2. **Three signatures of CIP opening (Block 023 Target 2)** — Block 024 will see these manifesting as CB responses to persistent basis deviations. The signatures are the diagnostic read; the CB response is the policy reaction.
3. **Carry-vs-basis population distinction (Block 023 Target 3)** — Block 024 should reference the population distinction when discussing CB swap lines (who is the swap line intervening with? Hedged investors via dealer balance sheets, not carry traders).
4. **2008 vs March 2020 anchors (Block 023 Target 2)** — Block 024 should reference these as the two canonical CB intervention episodes.
5. **BOJ exit second-order on basis (Block 023 Target 1)** — Block 024 should reference the demand-side compression mechanism as the basis for understanding why BOJ exit affects the basis.

## Cold-recall items NOT touched in Session 32 (re-drill queue for Session 33)

None new from this session. Block 023 carry-forward items (three-signal-layer diagnostic, three signatures, carry-vs-basis population distinction, 2008 vs March 2020 anchors) are all at Working+ and do not need re-drill.

## Anki cards

10 generated in Session 32, all atomic, all substrate-verified. Original pairing card 1784548986964 was deleted in Session 30 (Session 29.5 refactor); no other contamination.

## Pre-reads

None new from Block 023 close. Block 024 pre-reads (McCauley + Schenk 2020 + Borio 2016 + CB swap line communications) already assigned at Session 32 close for Session 33.

## Re-anchor considerations for Session 33 open

Per Session 31 process rule ("open diagnostic probes that aggregate prior probes' substrate need a 2-3 sentence re-anchor"), if Session 33 opens with a CB intervention probe (e.g., "Fed reactivates swap lines with BoJ, ECB, BoE, BoC, SNB — what does this tell you about the basis?") the mentor should re-anchor the Block 023 substrate first (three signatures, three-signal-layer diagnostic).

## SOFR-OIS naming audit (carried from Session 32)

Legacy "SOFR-OIS" used loosely in the deck is imprecise. Future substrate should use "SOFR-term-vs-OIS basis" (for the tenor/funding-friction read) or "EFFR-SOFR" (for the bank-funding-stress read). Standardization cleanup pass queued for a future session.

## Directive for Session 33

1. Pre-reads: accepted on user word per Session 26 convention. McCauley + Schenk 2020 + Borio 2016 + CB swap line communications.
2. Open with Block 024 pre-block probes (per Block 023 protocol: causal-mechanism probes, not fact-recall).
3. Target 1: CB swap line mechanics + history (when activated, what terms, what counts as systemic).
4. Target 2: CB intervention vs no-intervention (when do CBs intervene vs when do they let the basis swing?).
5. Target 3: Fed-ECB-BoJ coordination (or non-coordination) — global dollar funding as a global public good.
6. Target 4: Diagnostic tie-back to Block 023 (basis signature + CB response = policy-channel diagnostic).
7. Anki cards + competence map + coverage tracker updates at block close.
8. Block 025 (FX BIS data) is next after Block 024.