4/7/23 – Bond Investors Foresee Recession – Are They Wrong?
Interest rates continued to trend lower this week led by the intermediate sector as early economic data supported a Fed pause.
The following economic data releases supported the view that the US was nearing a recessionary environment:
- Manufacturing and Service Surveys(ISM) both came in weaker than expected and softer than the previous month
- Job openings fell to 9.9 million from a revised 10.5 million for the month of February
- Factory orders and Durable goods posted weaker readings
However, economic data released in the back half of the week counter balanced the recession fears:
- US employment situation firm with March figures surpassing expectations
- Hiring remained quite strong as service sector outpaces manufacturing.
- Labor market remains uncomfortably tight
- Wages a touch softer year on year at +4.2% – reflecting payroll mix (adding lower wage jobs faster).
Another outlier was the release of US Auto sales on Monday:
- The sector reported a strong 1st quarter YOY +8% sales gain as supply increased reflecting continued supply chain improvement while prices held firm.
Interest rates rose a touch on Friday after the employment release. However, the rates market is significantly lower than one month ago just before the banking crisis. See the chart below: 2 year Notes are more than 100bps lower. Is the banking crisis behind us or has it yet to manifest itself in the real economy?
We look to next week’s data for clues:
- CPI on April 12th
- Financial sector earnings begin on April 13th, with two US regional banks reporting as well as three money center banks.
This commentary is being provided by Halyard Asset Management, L.L.C. and its affiliates (collectively “Halyard” or “we”) for informational and discussion purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation with respect to the securities used, or an offer or solicitation, and is not the basis for any contract to purchase or sell any security, or other instrument, or for Halyard to enter into or arrange any type of transaction as a consequence of any information contained herein. Although the information herein has been obtained from public and private sources and data that we believe to be reliable, we make no representation as its accuracy or completeness. The views expressed herein represent the opinions of Halyard Asset Management, LLC, or any of its affiliates, and are not intended as a forecast or guarantee of future results. Past performance is not indicative of future results.