The Halyard Reserve Cash Management (RCM) strategy has encountered an unprecedented sixth consecutive monthly loss. While we are not happy with the string of losses, our conservative positioning has mitigated the downside relative to many of our peers. Since October 1, 2021, the RCM composite has generated a -0.42% loss. Comparatively, PIMCO’s MINT has lost -1.51% and Blackrock’s NEAR has lost 0.82% since October 1st. The loss for the Bloomberg Aggregate Bond Index, the flagship benchmark for the broad fixed income market is down 5.93% for Q1 2022. The loss has accelerated into the second quarter with the Aggregate now down 8.04% YTD thru April 12th.
Losses are unusual for short maturity fixed income portfolios and have been directly influenced by the sharp and steady selloff in the 2-year Treasury note. Since October 1st, the yield-to-maturity of the 2-year note has risen from approximately 0.30% to as high 2.50% earlier this month. The Federal Reserve has been the driver of the sharp rise in short maturity rates. As recently as November, the Fed had assured market participants that the uptick in inflation would prove transitory. Then the Central bank abruptly changed the narrative and communicated that interest rates would need to rise to battle inflation. Since then, the “drumbeat” of forecasted rate rises has gotten louder, and the committee has strongly suggested that there would be a 50 basis point hike at the May 4th FOMC meeting and, likely another 50 basis point at the June 15th meeting, with more to come this year.