Entries by halyard

February 2021 – Monthly Commentary

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The bond market has struggled mightily of late with one unexpected “fire” flaring up after another, and despite demanding attention, the Federal Reserve has failed to act.   Of concern has been the downward trend in Treasury Bill yields over the last few weeks.  No one wants to see the yield for T-Bills go negative, but with the Treasury reducing supply temporarily to stay under the debt cap, the Fed buying in the secondary market and money market funds now effectively all government Bill funds, the yield has nowhere to go but down.

January 2021 – Monthly Commentary

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Risk/Reward valuation of the Bond Market

The Bloomberg U.S. Aggregate Bond index (Formerly the Barclays Aggregate Bond Index), the widely followed benchmark measure for the broad U.S. bond market, generated a total return of 7.51% last year.  That performance was primarily due to the Federal Reserve buying all manner of fixed income instruments.  The Fed has promised that their monetary manipulation will continue into the foreseeable future, but some members have raised the topic of tapering the purchases.

December 2020 – Monthly Commentary

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The Halyard Asset Management Reserve Cash Management (RCM) strategy generated 1.23% after fees and expenses for the year.  That compares favorably to the 0.32% total return of the iMoneyNet Money Fund average.  As of January 1, 2021, the RCM strategy has a duration of less than 5 months and a weighted average yield to maturity of approximately 0.37%.  In comparison, the benchmark has a yield-to-maturity of 0.00% due to the high management fees associated with those funds and the current low interest rate environment.  Aside from Treasury Bills, the top 5 RCM holdings are Toyota Motor Credit, Allstate Corporation, Lowe’s, Ralph Lauren, and Oracle.  The composite is overweight floating-rate notes, a structure that typically performs well when interest rates rise.  While we don’t anticipate an interest rate hike anytime soon, floaters are attractive relative to fixed rate paper.

November 2020 – Monthly Commentary

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It’s a paradox that as we wind down this very difficult year in which the pandemic ravaged so much of our day-to-day lives that the capital markets should close out the year on such a quiet note.  The bond market continues to benefit from the Federal Reserve’s open market buying and we have no expectation that the Fed will reduce their purchases anytime soon.  That’s especially the case given the upward pressure investors have put on 10-year Treasury note yields since early December.  The Fed continues to espouse the no inflation rhetoric citing government measures that show inflation continues to run below 2% in aggregate.  But we don’t subscribe to that view given the upwardly biased pricing we see in everyday goods and services.  Their desire to keep monetary policy excessively loose continues to benefit riskier assets as witnessed in equity prices and credit spreads. 

October 2020 – Monthly Commentary

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Since our last monthly update we have seen the Presidential election mostly come and go, have seen the coronavirus cases spike, and have learned of two successful vaccines.  The country is split in terms of satisfaction with the outcome of the election, but investors are looking past the surge in the virus to the potential endgame the vaccines present.  That optimism is reflected in the performance of the S&P 500 index.  Year-to-date the Index has generated a total return of 13.5% at the time of this writing.  It seems investors are anticipating that the economy will return to the growth it was experiencing this time last year, before anyone was locked down and working from home.  Surely there is pent up demand for travel and leisure activities.  However, there is still an outsized number of people out of work and with the recent uptick in cases we can likely expect that number to climb further. 

September 2020 – Monthly Commentary

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The bond market was little changed in September as investors grappled with continued virus uncertainty and traders with school-aged children tried to figure out the logistics of educating their young.  The latter issue made for uneven liquidity during the month which may have factored into the performance of the stock market.  For the month, the S&P 500 was down -3.91% breaking the string of consecutive positive months that extend back to April.  The performance of the bond market for the month was lackluster with the 10-year Treasury Note falling 1.5 basis points for the month.  

August 2020 – Monthly Commentary

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As we close out summer and the final month of the third quarter, the bond market has been relatively stable compared to the bipolar volatility of the stock market.  Earlier this month, stocks suffered an unexpected downdraft after rising steadily from the March low.  Speculation is that a sizeable Asian-based hedge fund had bought call options on a number of the largest tech equities.  To hedge the sale, the counterparties bought the underlying stocks and inadvertently created a virtuous circle of buying.  Once the hedging was complete, sellers stepped in to take advantage of the unexpectedly attractive prices.  While difficult to quantify the size of the trading, judging by the run up in stock prices and measures of option value, there seems to some inkling of truth to the theory. 

July 2020 – Monthly Commentary

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This month, as previously announced, Fidelity will close their Prime money market fund after the fund suffered during the illiquidity of the Corona virus-inspired volatility experienced in March of this year.  We speculated that the decision was a business one made out of the preponderance of risk to reputation had the company been forced to support the fund.  However, we viewed the action as a one-off decision, and not one that would impact the entire industry.  It turns out that the risk posed by Prime money market funds has been on the radar of the Federal Reserve for some time.  The Fed is concerned that the Prime mutual fund structure represents a shadow bank.  The term shadow bank refers to an unregulated structure that has similarities to a bank.  The Federal Reserve tightly regulates the banking system and if they deem the money markets as a shadow bank, they are de facto indicating that they can’t control it.

June 2020 – Monthly Commentary

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June 2020 In the decades that the Halyard team has been managing the Reserve Cash Management (RCM) strategy we’ve explained that the goal of the RCM is to outperform the money market universe while avoiding the downside risk the universe has demonstrated on occasion.  We endeavor to accomplish that through security selection, believing the mistake […]

May 2020 – Monthly Commentary

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May 2020 The Reserve Cash Management composite continued to enjoy the benefit of spread tightening in May, generating a total return net of fees of 0.36%.  The characteristics of the composite changed little from the prior month and the average credit rate is A+. The Federal Reserve executed their lender of last resort function brilliantly.  […]