Halyard’s Weekly Wrap – 10/28/22

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Last week’s Fed leak that they would consider slowing the trajectory of rate hikes at the November 2nd FOMC meeting continued to dominate trading this week. Consensus seems to be developing that the recent softening of economic data will force them to temper their hawkishness and will raise the overnight rate 75 basis points next week and another 50 basis points in December. Reflecting that, the 5-year note fell to 4.06% before closing the week at 4.18%, on the back of a stellar auction on Wednesday. The auction cleared at 4.192%, through the presale when-issued yield of 4.21. The bid to cover rose to 2.48 times versus 2.27 times at the last auction, indicating that demand was high

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Halyard’s Weekly Wrap – 10/21/22

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A Wall Street Journal story released this morning suggested the Fed would raise rates by 75 basis points at the November FOMC meeting but would then evaluate the need and magnitude of a December rate hike. The market had been anticipating 75 basis point hike at each of the meetings. As we’ve seen in the past, most notably in June when the Fed leaked that they intended to raise rates by 75 basis points, the Fed will leak their intentions in an effort to prepare the market for a change. Whether it was a deliberate signal or cover for St Louis Fed President Bullard’s ethical gaffe, the market heard it loud and clear. The two-year note fell 14 basis points on the day as did Fed Fund futures. The peak in Fed Fund futures continues to be May 2023.

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Halyard’s Weekly Wrap – 10/14/22

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There was precious little for the Fed to celebrate this week. The all-important employment report has been relegated to second tier status as the producer and consumer inflation measures take center stage as the most important measure of the Fed’s success, or as is the case in this week’s report, failure. Both measures came in above expectations and didn’t really offer any indication that the rate hikes to date have been successful. The markets reacted mostly as expected. The 30-year bond, after a brief short covering rally on the day of the CPI release is closing the week just a basis point below 4.00%. Similarly, the 2-year note is closing the week at 4.50%. Fed Fund futures reset materially higher, with the May 2023 contract indicating a peak Fed Funds rate of 4.935%.

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Halyard’s Weekly Wrap – 10/07/22

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Higher rates for longer was the concise message out of the Federal Reserve this week. After an attempt at rallying on Monday, both stock and bond prices rose with quarterly rebalancing and short covering, markets again succumbed to the Fed’s message by the week’s end. The S&P 500 finished up 5.5% higher by Tuesday evening and the yield to maturity on the 2 year US Treasury Note finished lower by 17bps to close October 4th at 4.09%. The rallies were driven in part by the 3rd shot at a narrative that encompasses a central bank on the cusp of slowing the pace of rate hikes.

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Halyard’s Weekly Wrap – 09/30/22

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Chaos erupted overnight Sunday in the U.K. as investors reacted harshly to announced tax cuts and sent Gilt interest rates soaring. The U.K. is besieged with a similar inflation problem as the rest of the world and the proposed tax would likely worsen rising prices. By Tuesday morning the 10-year note was a full 100 basis points higher in yield before the Bank of England announced that they would intervene and buy Gilts. After all was said and done, the U.K. 10-year ended the week 20 basis points lower at 3.81%, but not before “dinging” the U.K. government’s willingness to fight inflation at whatever cost.

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Halyard’s Weekly Wrap – 09/23/22

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As was expected, the Fed raised the overnight lending rate corridor by 75 basis points, to 3.0%-3.25% and in decidedly hawkish post-meeting press conference, the Chairman signaled that they are not yet close a peak in the rate. It was communicated that Fed funds would likely end the year at 4.25%. That news rocked the Treasury market with the 2-year note closing the week 32 basis points higher at 4.19%, just off the intraweek high of 4.25%. The yield curve further inverted, closing at a -57 basis points, just a shade below the -75 basis points touched in May 2000.

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Halyard’s Weekly Wrap – 09/16/22

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The best that can be said about this week, from a business perspective, is it’s over. Traders came into the week optimistic with hopes sustained from the August employment situation. We anticipated that the CPI would finally show a downtick and the relentless pressure on interest rates would finally moderate, but that did not come to pass. Instead, CPI printed an unwelcome uptick across most categories and reinforced the need for higher interest rates. While the Fed sat on the sidelines post-report, bond traders acted decisively, pushing the 2-year note 20 basis points higher on the day, ultimately ending the week 32 basis points higher.

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Halyard’s Weekly Wrap – 09/09/22

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With regard to the Fed’s action on overnight rates, our plan was to watch how consumers reacted to the July rate hike as summer progressed. We expected that high gas prices along with broad based inflation would slow consumer demand enough that the Fed would, at the very least, moderate further rate hikes, possibly even pause for a meeting or two. Instead, the Fed, via the Wall Street Journal, communicated this week that another 75-basis point hike is likely when it meets on September 21st. The various members of the Open Market Committee have all aligned as hawkish and have left open the possibility of another 75-basis point at the November meeting. That would push the overnight corridor to 3.75% to 4.00% by November 2nd. In previous communications the Fed suggested that the target rate was 3.5%, so 4% would be somewhat restrictive.

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Halyard’s Weekly Wrap – 09/02/22

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Economic data this week offered a reprieve from the recent trend of weak indicators. This morning’s employment report for August was especially cheering. Economists had been looking for the economy to add 298,000 jobs in the month, following last month’s 528,000 add. We were skeptical that August would follow with an above trend outcome, but we were proved wrong by a print of 315,000 new jobs. Ironically, bond prices rallied across the curve on the news in a case of “sell the rumor, buy the fact.” Earlier this week whisperings of an outsized employment report began to circulate. Anticipating that possibility, the two-year note yield touched 3.50% with the thirty-year yield topping out at 3.36%.

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Halyard’s Weekly Wrap – 08/26/22

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The economic data this week continued to portray a deceleration in the economy, but the most anticipated highlight was Chairman Powel’s comments at the Jackson Hole Symposium. We’ve always had a distaste for the symposium. We view it as a Davos-like affair, attended by an elite group that considers themselves above their constituents. To us, that sends the wrong message about the mission of the Central Bank. Especially given the mess the Federal Reserve has created with excessively easy monetary policy.

We’d describe the speech as being saccharine-like in the in description of the current inflationary impulse. The speech didn’t follow the post-FOMC press conference structure in which a question & answer period followed. Because of that, there were whispers that Powell would offer a mea culpa to the mess that he oversaw, but that was not to be. Instead, he painted a “Pollyanna” picture of the current state of affairs. Of that, there were 3 “jaw dropping” quotes that we need to bring to your attention. They are, in chronological order of their mention in the speech, “The absence so far of broad-based inflation pressures,” “longer-term inflation expectations have moved much less than actual inflation…suggesting that households, businesses, and market participants also believe that current high inflation readings are likely to prove transitory,” and finally, “Today we see little evidence of wage increases that might threaten excessive inflation.”

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