Entries by halyard

May 2023 – Monthly Commentary

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The Fed paused! Following ten consecutive rate hikes, the FOMC refrained from raising the federal funds rate at the June meeting. The summary of economic projections of the committee members offers some insight into their thinking. Despite leaving the overnight rate unchanged, the committee raised its Fed Fund forecast for the end of this year to 5.4% – 5.6%, an indication that they believe additional hikes will be warranted. What likely drove that decision was the lowered forecast for the unemployment rate from 4.5% to 4.1% and the forecast for real GDP revised for this year from 0.4% up to 1.0%.

Halyard’s Weekly Wrap – 5/26/23

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Our expectation that traders would overlook fundamental data this week and instead focus on the debt ceiling stalemate proved prescient. The one release that took the market by surprise were the minutes of the May FOMC meeting. Thinking back to the Q&A session that followed that meeting, we interpreted Powell’s comments as closing the door on a June rate hike, but the minutes told a different tale. The Bloomberg story following the release read “Officials were divided over path of rates with more favoring a pause.” “More” is clearly not a consensus and traders immediately took notice and hit the bid in the futures market.

Halyard’s Weekly Wrap – 5/19/23

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The headline economic report this week was Retail Sales and, for the most part, it told the story of a resilient consumer. The headline result rose 0.4% over the March reading, which you may recall was an abysmal -1.0%, month-over-month. March’s outcome was revised to a simply dreadful -0.7%. On balance, the market ignored the data, choosing instead to obsess about the debt limit impasse. Treasury Secretary Yellen reiterated her concern that the U.S. would default as soon as June 1st if an agreement to raise the ceiling isn’t reached before then. The Treasury Bill market has priced in a default, with early June Bill maturities offering a yield-to-maturity of as much as 5.5%, more than 0.50% higher than Bills maturing a month later. Ironically, the rest of the yield curve, as well as the stock market are trading as though an agreement of the ceiling will be reached. We agree that a deal is most likely to be reached and the market will again return to trading on fundamentals, but as we get closer to the drop dead date, we expect that volatility will rise.

Halyard’s Weekly Wrap – 5/12/23

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All eyes were on the release of the most recent inflation data this week. Both the CPI and PPI came in better than expected as inflation continues to cool. Consumer prices rose 4.9% year-over-year, the smallest rise in two years, but still well above the Fed’s target of 2%. The Producer Price index was much better than expected with year-over-year final demand inflation registering 2.3%. Be forewarned though; producer prices have a low predictability of the direction of consumer prices.

April 2023 – Monthly Commentary

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With volatility still at a heightened level from the failure of Silicon Valley Bank, Signature Bank, and First Republic, we thought it would be an opportune time to discuss how we’ve positioned our Reserve Cash Management strategy (RCM). As the name implies, the RCM is a separately managed account strategy designed to generate returns in excess of the money market universe with a somewhat similar risk profile.

The short-maturity fixed income landscape is vastly different than last year. Namely, the overnight lending rate corridor is 5.0% to 5.25% and we’re likely at the peak of that rate for this cycle. Moreover, the Fed Funds futures market is anticipating that the Fed will cut the overnight rate later this year and will ultimately take the Fed Funds rate below 3.00%.

Halyard’s Weekly Wrap – 5/5/23

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Ted Lasso encourages his players to “Be a Goldfish” because the animal only has a 10 second memory. We think the Federal Reserve is taking this advice literally.

The most consequential story of the week came out on Tuesday, the day before the FOMC announcement. The Treasury Buyers Advisory Committee (TBAC) released the minutes of their quarterly meeting with the Treasury Department. The TBAC is a high-level group of money center banks and Treasury bond buyers that meets with Treasury officials quarterly to discuss operations of the Treasury bond market. The Treasury asked the TBAC what the tolerance would be for Treasury buying back bonds in the open market. We were floored! The current environment in which we find ourselves can be laid entirely at the foot of the Federal Reserve and the irresponsible monetary policy it has pursued. That they are even considering resuming market manipulation is unspeakable.

Halyard’s Weekly Wrap – 04/28/23

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The first look at Q1 GDP offered something for everyone. The headline number presented quarter-over-quarter growth of 1.1%, below the expected 1.9%. The obvious takeaway is that economic activity is weakening as the U.S. slowly slips toward recessionary territory. But we would argue that, while that may be true, activity in Q1 was not as bad as that first look. The BLS measures GDP on a quarter-over-quarter basis, which makes no sense, as the final quarter of the year is always the most robust. To adjust for that, the BLS seasonally adjusts the number to achieve a smoothing effect. We prefer, instead, to compare the economic activity on a year-over-year basis. From that perspective, Q1 GDP registered 1.6% over the GDP reported for Q1 2022 – Better than the reported Q/Q 1.1% headline. However, Q1 2022 grew 3.7% over Q1 2021.

Halyard’s Weekly Wrap – 4/21/23

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To put in trading desk parlance, we were “Unched” this week! That pretty well sums up trading activity. The 2-year note was 9-basis points higher in yield and the 30-year bond also drifted higher, but only by 5-basis points. The S&P 500 traded lower by less than 1%. Economic activity, for the most part, came right on the screws, with housing starts and existing home sales reports in line with forecasts.

March 2023 – Monthly Commentary

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Following the Federal Reserve-induced banking crisis that gripped the capital markets last month, much debate has focused on the next course of action. Clearly, the Fed’s sharp and relentless rise in interest rates, and negligence of its regulatory responsibility contributed to the demise of Silicon Valley Bank and Signature Bank. From that, an argument can be made that they should pause from any additional rate hikes to evaluate their action to date. If for no reason other than to let any banks that extended duration too soon generate some net interest income. However, an equally persuasive argument is that the inflation mentality is starting to become entrenched.

Halyard’s Weekly Wrap – 4/14/23

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Following the Federal Reserve-induced banking crisis that gripped the capital markets last month, much debate has focused on the next course of action. Clearly, the Fed’s sharp and relentless rise in interest rates, and negligence of its regulatory responsibility contributed to the demise of Silicon Valley Bank and Signature Bank. From that, an argument can be made that they should pause from any additional rate hikes to evaluate their action to date. If for no reason other than to let any banks that extended duration too soon generate some net interest income. However, an equally persuasive argument is that the inflation mentality is starting to become entrenched. From our perspective, there were three big hurdles to overcome to justify raising rates at the next meeting, and all of them have flashed a green light for the Fed. The employment report, the consumer price index, and the producer price index all portrayed an economy that is slowing, but by no means is falling off a cliff. That should be enough to give them room for at least another 25-basis point hike.