Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
02/27/26 –
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing”. – Chuck Prince, CEO Citigroup – July 2007
There were opposing stories driving the capital markets this week with news of a continued deterioration in the private credit space being offset by a continued flow of cash into the fixed income market.
The latest credit blowup is the U.K. based Market Financial Solution Ltd. Like the high-profile collapses of First Brands Group and Tricolor Holding last year, MFS appears to be guilty of using the same collateral for multiple loans resulting in what is said to be an approximately GBP 930 million shortfall. While not enough to cause a systemic panic, the loss has again brought the topic of questionable credit practices to the fore, and with it the riskiness of private credit.
Despite that concern, the investment grade fixed income market continues to see heightened demand, especially in the short end of the yield curve. The demand for short paper pushed the 2-year note to a fresh low of 3.38%, which is somewhat perplexing given that one-month Treasury Bills offer a rate of 3.67%. Typically, the logic behind an inverted 2-year note is the expectation that the overnight rate is going to fall precipitously, such that the rate earned over the 2-year holding period would exceed that earned by rolling Treasury Bills. With the unemployment rate seeming to stabilize, inflation no longer falling, and corporate earnings continuing to grow at a healthy pace, we don’t think that’s likely. While Fed Fund futures are pricing in more than two 25 basis point rate cuts by next year, we think at most we’ll see only a single cut.
Of the secondary economic data released this week the Chicago PMI business conditions index stood out. The index registered 57.7 at the last reading, well above the 37.3 low touched in November 2025. Could it be that businesses are becoming more confident? We will watch the other confidence measures to see if they show improvement as well.
Economic data to be released next week includes the Retail sales measure for January, which is expected to be flat versus the prior month, and non-farm payrolls for February – which is expected to show a gain of 60,000 new jobs for the month.
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 – 01/27/23
/in Weekly Wrap/by halyardFourth quarter GDP registered 2.9% annualized growth, beating the 2.6% expectation, but as is often the case with economic data, the devil is in the details. The growth was driven by rising inventories, government spending, and softening imports. The weakness in imports is mostly due to the Chinese covid quarantine and the resultant slowdown in production. With the Chinese factories humming again, we expect that net imports will revert to being a drain on GDP in the first quarter. Similarly, inventories added nicely to the headline number but that is also likely to flatten this winter. The biggest disappointment in the release was private final domestic demand. The measure of how much Americans wanted to consume fell from 1.1% in Q3 to 0.3% in Q4. That’s a significant slippage in demand, which jibes with the disappointing retail sales registered in the last two months of 2022.
Halyard’s Weekly Wrap – 01/20/23
/in Weekly Wrap/by halyardThough it was a holiday shortened week in the U.S., there was plenty of action in the markets. The most significant market-moving news was the Retail Sales report for December. Recall that November retail sales were disappointing, worrying analysts that the holiday selling season was going to be a bust. That worry proved prescient! Retail sales for November were revised down from -0.6% to -1.0% from the October level. On Wednesday the government reported that December retail sales fell -1.1% from the revised November figure. Parsing through the details, the weakness was broad-based, with sales at department stores falling a shocking 6.6% from November’s level.
Halyard’s Weekly Wrap – 01/13/23
/in Weekly Wrap/by halyardThe December CPI report released on Thursday was a pleasant surprise for investors. The headline CPI fell -0.1% month-over-month, and the year-over-year measure fell to 6.5% from 7.1% the previous month. Core CPI, the measure that excludes food and energy, rose 0.3% over the previous month, a slight uptick from the 0.2% previously reported. Core CPI has fallen to 5.7% year-over-year from the peak of 6.6% reported last September. The market breathed a sigh of relief as witnessed by the massive rally in the long bond on the day of the release, closing nearly two points above the previous day’s close. We suspect that much of the rally was driven by short covering, driving the yield-to-maturity down below 3.6%. At that yield level it’s hard to justify buying from a fundamental perspective.
Halyard’s Weekly Wrap – 01/06/23
/in Weekly Wrap/by halyardToday’s bond market action is not what one would expect given the release of the December jobs report. The report showed the economy created 223,000 new jobs, again exceeding the 203,000 that was expected. Parsing further through the report, the unemployment rate fell to 3.5%, a record low, and the participation rate increased, meaning that more people joined the workforce and even more of them found work. At first glance, this is not the outcome that the Fed was hoping for. They are trying to cool the economy and the employment situation is actually further heating it up. But bond traders chose instead to focus on the Institute for Supply Management (ISM) Services survey.
Halyard’s Weekly Wrap – 12/23/22
/in Weekly Wrap/by halyardWe had a feeling the government economists wouldn’t let 2022 get away without a little post-FOMC volatility. A summation of the economic releases this week is that the housing market stinks, inflation continues to be a problem, and consumer confidence ticked up last month. We’re skeptical of that last point. Both the Conference Board and the University of Michigan showed an uptick in confidence despite the continued array of layoff announcements. Our conclusion is that the uptick is directly correlated to the drop in gas prices and nothing more.
Halyard’s Weekly Wrap – 12/16/22
/in Weekly Wrap/by halyardAs expected, the Federal Reserve and the European Central Bank both raised overnight interest rates this week, and both delivered a hawkish prepared statement but softened the language in the post-conference press conference. At the press conference Powell said that rate-hike speed is no longer the most important question, now that the top of the Fed Funds target range is 4.5%. We interpret that as meaning that the days of 75-basis point hikes are behind us and that the possibility of a pause at the February meeting is now possible. Christine Lagarde also communicated that another 75-basis point hike is unlikely, but with the ECB overnight rate sitting at 2.5%, she is not likely to garner the same inflation-fighting stature as Powell.