Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
10/09/26 –
The sell-off in US rates took a breather this week, with the 10-year note yield falling 3 basis points to 5.24% from last Friday’s closing level. The same falloff in volatility was present in the S&P 500, with the index closing up 1.2% for the week – just below this past Tuesday’s all-time high.
The ISM Services index dipped slightly in September, falling from 55.0 to 54.9, the 27th consecutive month of expansion. In a sign that inflation continues to be problem the prices paid index continued its upward trend touching 74.0 in the month, the highest it been since 2022.
The 10-year U.S. Treasury yield spiked above 5.3% early in the week (hitting highs around 5.36%) before ending the week around 5.24%.
The 30-year Treasury bond yield reached a peak near 5.73% before settling around 5.60%.
The 2-year Treasury yield slipped to approximately 4.79% as traders recalibrated short-term Federal Reserve rate expectations (removed some of the aggressive rate rise that had been priced into the front end during the last week of September). Investment grade corporate new issuance slowed to ~$13bn for the week, half of what was expected, adding to the firmer tone in secondary market credit trading. Investment grade credit spreads remain firm but off the tights printed during the middle of September.
Oil Prices and Inflation Fears:
Spikes in crude oil prices (which briefly pushed past $103 a barrel amid ongoing Middle East tensions and the conflict with Iran) re-ignited fears of stubborn inflation, placing continuous downward pressure on bond prices. The latest driver is Iran’s targeting of tankers in the strait – possibly slowing the recent uptick in supply of oil related products from the region.
Strong Treasury Auctions Provided Relief as investors paid through when issue trading prices to buy bonds.
A $39 billion auction of 10-year notes on Wednesday saw strong demand, temporarily halting the aggressive sell-off and causing yields to back off their multi-decade peaks. A subsequent 30-year bond auction on Thursday also drew solid investor appetite, proving that buyers remain willing to step in and lock in high yields.
The stability reached during the week in US rates was isolated; global sovereign debt markets faced strains, including sharp moves in French, Italian, and U.K. government bonds driven by local fiscal and budget concerns.
European Bond investors awaken. The graph below depicts the spread between current 5-year French notes and 5-year German notes. The old saying is apparently rings true – “Deficits don’t matter until they do!”
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.
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Halyard’s Weekly Wrap – 8/2/24
/in Weekly Wrap/by halyardWe had two closely watched events this week, the FOMC rate decision and the monthly employment report, and neither disappointed in terms of market impact. As was widely expected, the FOMC left the overnight interest rate unchanged, with Chairman Powell strongly suggesting that a rate cut would be coming at the September meeting. Throughout his post-meeting press conference, he emphasized the Fed’s dual mandate of full employment and stable inflation. We interpret that as a concern that the employment backdrop has become a worry. The employment measures this week validated that concern.
Halyard’s Weekly Wrap – 7/26/24
/in Weekly Wrap/by halyardThe data this week was decidedly mixed – although the Bond market priced in further cuts. The Philadelphia non-manufacturing index plunged to -19.1 from the 2.9 recorded last month. Similarly, the Richmond Fed manufacturing index dropped to -17 from the -10 recorded last month. As expected, there was no joy to be found in the housing sector as existing and new home sales were both down for the month.
Halyard’s Weekly Wrap – 7/19/24
/in Weekly Wrap/by halyardThere was a host of Fed speakers this week including Chair Powell before the Economic Club of Washington DC. All of them reiterated the Chairman’s testimony before congress last week that they are pleased with the cooling inflation and somewhat concerned about the jobs market. Powell added that “he’s very happy doing the job” of Fed chair and that he’ll stay in office until his term ends in May 2026.
Halyard’s Weekly Wrap – 7/12/24
/in Weekly Wrap/by halyardThe highlight of the week was FOMC Chairman Powell’s dovish testimony on Capitol Hill. In describing the dual mandate of stable jobs and low inflation he said inflation has shown “modest further progress” and that labor markets had cooled “considerably.” We interpret that as meaning that a rate cut has once again been moved to the front burner of the FOMC’s agenda.
Halyard’s Weekly Wrap – 7/5/24
/in Weekly Wrap/by halyardToday caps off a holiday shortened week in the US that saw yields continue to fall across the curve. As we have been writing for quite some time, US economic data has been mixed and this week we saw a decided shift in surprises to the downside. Although, the headline Non-farm payroll number beat softened expectations – registering +206,000 for the month of June compared to the consensus of +190,000. The two-month downward revision subtracted 111,000 previously reported jobs, and private payrolls underwhelmed. The US unemployment rate now stands at 4.1% – up 0.6% from the January 2023 low of 3.4%.
Halyard’s Weekly Wrap – 6/28/24
/in Weekly Wrap/by halyardEarlier this week, the Federal Housing Finance Authority, the government regulator for Fannie Mae and Freddie Mac authorized Freddie to buy second mortgages. The intent of the agency is to make it cheaper for homeowners to tap home equity without refinancing their existing mortgage and thereby preserving the low-rate mortgages originated prior to the run up in rates. The program is an 18-month trial with Freddie authorized to buy up to $2.5 billion second mortgages. The purchases will be limited to second mortgages of $78,277 or less. Critics say that the program will be inflationary, which if it was done on a larger magnitude we would agree with, but with a $2.5 billion program cap, we doubt that will come to pass. On the other hand, it could be a slippery slope to a wider program and another government handout.