Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
03/13/26 – Bond yields materially higher as market fixates on energy’s inflationary impact. This higher for longer scenario will depend on the length of the US / Iranian conflict.
The war with Iran is concluding its second week and hopes for a speedy conclusion have diminished and with it a return to normalcy for the markets. Interest rates have skyrocketed, with the two-year note closing the week 35 basis points higher from the first of the month. For the first time in nearly four years the spread between the 3-month Treasury Bill and the 2-year Treasury note is positive. That’s a telling signal that traders think that the Fed is done cutting rates. The reasoning is that with crude oil trading at an elevated level, gas prices are going to filter into inflation and that the Fed is not going to cut rates with inflation rising. That’s especially true if energy begins to filter through into the broader economy. The flaw in that thinking is that if the energy becomes sustainably expensive, the already faltering economy will likely tip into recession and the Fed will be forced to cut rates.
Economic data this week continues to send a mixed signal on growth and inflation. Month-over-month CPI ticked up to 0.3% from 0.2% in January, while the year-over-year measure was unchanged at 2.5%. Unfortunately, the Fed’s preferred inflation gauge, the core PCE price index rose 0.4% from the previous month and registered 3.1% year-over-year. That’s doesn’t give the Open Market committee justification to cut rates further.
Housing starts unexpectedly rose, but that outcome was tempered by a -5.4% drop in building permits, meaning the spike is going to be exactly that and not a sustained rise in home building. Also of note, the recent rise in Treasury rates has pushed the 30-year mortgage rate above the 6% level – quashing the recent refinance activity.
Also released this morning was the second look at Q4 GDP for 2025, which showed that growth was half of what was first reported, coming in at annualized rate of 0.7%. Personal consumption was also lower, from 2.5% to 2.0%. It appears that the Government shutdown did more economic harm than first estimated.
Next Wednesday is the conclusion of the March Open Market Committee meeting. The broad consensus is that they will leave the overnight rate unchanged. We expect that Chairman Powell will be peppered with questions about the price of oil, and we expect him to be even more evasive than usual. In passing, this will be Powell’s penultimate meeting as Chairman. He deserves credit for riding out the wrath of Trump and maintaining the Committee’s independence.
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 – 6/2/23
/in Weekly Wrap/by halyardThe best news of the week is that the debt ceiling issue has been resolved, at least until January 2025. The news eased investors fear that a default by the U.S. government would collapse the entire financial system. We won’t have to worry about that again for another 18 months. As expected, the default premium investors built into the front end of the bill curve has entirely vanished and nearby bills are trading near 5% – off the high of 7% touched just two weeks ago.
Halyard’s Weekly Wrap – 5/26/23
/in Weekly Wrap/by halyardOur 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
/in Weekly Wrap/by halyardThe 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
/in Weekly Wrap/by halyardAll 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.
Halyard’s Weekly Wrap – 5/5/23
/in Weekly Wrap/by halyardTed 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
/in Weekly Wrap/by halyardThe 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.