Halyard’s Weekly Wrap – 02/18/22

The front end of the interest rate markets have priced in between 0.75% and 1.00% of tightening over the past several months.  The one year US Treasury Bill has risen to 1.0% from 20bps in early December.  The Two year US Treasury Note similarly has increased to 1.48% from around 50bps in December.  The Two year note briefly traded above 1.60% at the end of last week as St. Louis Fed President Bullard began pounding the table for more immediate policy changes than the market had been expecting based on Powell’s measured and deliberate pace.  Yields have fallen a touch since then – being walked lower by Ukraine – Russia geopolitical risks and the release of the FOMC January meeting’s minutes, which showed an inclination to move faster but no hint of an imminent 50 bps increase.

Fed President Bullard, fearing that the Fed is behind the curve and that inflation may not recede in the near term, repeated his remarks Thursday – calling for 100bps increase in Fed Funds by July 1st.  There are three FOMC meetings between today and July 1st.  This indicates that Bullard sees at least one 50bps move higher.  We wonder if Bullard is inviting himself into a woodshed meeting with Chair Powell or whether Chair Powell has released the St Louis Fed President to the press to prepare the markets for a 50bps increase.  We highly doubt this FOMC has the fortitude to raise 50bps but time will tell.  We also found it interesting that if President Bullard wanted to raise rates faster and curtail the quantitative easing sooner wouldn’t he have voted against the others at the January FOMC?  Bullard also said he thinks the overnight neutral rate of interest is near 2%.  If that is the case does it make sense that the 10 year US Treasury note also yields 2%?

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.