Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
10/24/25 – Summer Doldrums Continue in October
The Bureau of Labor statistics remains closed along with the rest of the government amid the funding shutdown, but certain staffers were recalled to release the consumer price index for September. The index is used to calculate the cost-of-living adjustment for social security had been calculated before the October shutdown.
In addition to CPI, S&P released the various PMI indices and University of Michigan surveys were published this morning. The PMI’s came in slightly better than expected while the U Mich surveys were not so upbeat. The 1-year inflation expectation was unchanged from the last measure, remaining at a troublesome 4.6%. Even more worrying is the 5-10 year inflation expectation that ticked up to 3.9% from 3.7% at the last survey. The consumer sentiment reading in the U Mich survey holds near decade lows. The yield curve was nearly unchanged for the week.
Next week will be a busy one for markets as 176 companies of the S&P 500 index report earnings and the Fed concludes its two-day meeting on Wednesday. Earnings this season have been better than expected, pushing the SPX index through 6,800 to a new all-time high as retail investors ignore the lofty valuations in expectation of accelerating growth.
The consensus view is that the FOMC will announce a cut to the Fed Funds rate by 25 basis points on Wednesday. The whisper on the street is that they’ll also terminate their quantitative tightening operation. In doing so, the net effect should be somewhat bullish for Treasury Bonds at the margin. We expect that the Chairman will be peppered with question about the dearth of economic data and how they intend to guide monetary policy during the shutdown. Given that he tends to avoid politics at all costs, we expect him to be evasive on the subject.
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 – 12/09/22
/in Weekly Wrap/by halyardDecember is a tricky time for the capital markets as banks, brokers, and investors all endeavor to close the year with their respective portfolios 100% invested. Carrying cash over “the turn”, as year-end is colloquially referred to, is not acceptable in the capital markets. As a result, markets can become volatile to the point of seeming irrational. This year that irrationality is most evident in the Treasury Bill market. We refer to the soon to mature December 15th Treasury Bill, although the entire nearby Bill market has also been volatile. The Dec 15 Bill yielded 3.15% at the close of November but ended the day yesterday yielding 2.39%. Logically, that makes no sense. The overnight Fed Funds rate corridor is 3.75% to 4.00%, and the Fed Reserve Repo program offers a set 3.80% rate for the institutions that qualify for the program, and yet the near-term Bill curve continues to be in disarray as we approach the end of the year. One needs to look no farther than the “Calculated New Cash/Pay Down” section of the Treasury Direct website to understand why. Between December 6th and December 13th the Treasury paid down $76 billion in Bills; that’s to say that they sold $76 billion Fewer Bills than the amount maturing. In effect, the Treasury tipped the supply/demand of Treasury Bills out of balance which has resulted in wild gyrations in the Bill market. The Treasury will refill their coffers somewhat next week with net new cash of $64 billion when they sell the new 3-year, 20-year and 30-year securities, but that should not solve the Treasury Bill imbalance. As a result, we expect Treasury Bills to continue to trade rich to the Fed Funds target and the Reverse Repo program into year end.
Halyard’s Weekly Wrap – 12/02/22
/in Weekly Wrap/by halyardThis has been the kind of week that nimble traders love and position traders hate. The two main drivers of volatility this week were Chairman Powell’s speech before the Brookings Institute and the November employment report. The result has been a wildly vacillating rates market. The two-year note started the week at 4.44% but plunged to 4.23% on Thursday before retracing some of the move to close the week at the mid-point of that range. The 30-year followed the same path, opening the week at 3.72% before dipping down to 3.60%.
Halyard’s Weekly Wrap – 11/25/22
/in Weekly Wrap/by halyardThe Federal Reserve released the minutes of their last Open Market Committee meeting at 2:00 p.m. on Wednesday, the afternoon before Thanksgiving. There are a few days on the calendar when liquidity is razor thin and Thanksgiving eve is one of them. The minutes were particularly anticipated as several Fed speakers had recently hinted at reducing the magnitude of the rate hikes going forward. That suspicion was affirmed in the “Participants View” section. The exact quote was “…a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” The key words in the quote were “substantial majority.” Remember, committee votes do not need to be unanimous; a simple majority is required, and a substantial majority tells me that they have that. We interpret that statement as the Fed communicating that the December hike will not be 75-basis points, with a 50-basis point hike more likely. The minutes also acknowledged that rate hikes impact the economy with a lag, and they are starting to see evidence of slowing. But any hint of policy action in the New Year was avoided entirely.
Halyard’s Weekly Wrap – 11/18/22
/in Weekly Wrap/by halyardThe Federal Reserve has aggressively raised rates this year beginning in March – with 6 consecutive increases in the overnight target rate. The Fed has gone from 0% to 3.75% in eight months and is expected to increase rates another 50bps to 4.25% at its upcoming FOMC meeting on December 14th. Fed Fund futures markets expect a terminal rate of 5.06% by June 2023 – implying another 75bps are in the pipeline over the next six months.
Halyard’s Weekly Wrap – 11/11/22
/in Weekly Wrap/by halyardFinally, a downward bias to the Consumer Price Index! That’s not to say that prices are contracting. In fact, taking it at face value, the inflation numbers are still too high. But the rate of increase is falling, which is welcome news for consumers. Core CPI, the measure that excludes food and energy, rose 6.3% year-over-year, falling from a year-over-year increase of 6.6% last month. On a month-over-month basis the measure rose 0.3%, down from 0.6% last month. That’s a welcome improvement and comes just in time for the Fed.
Halyard’s Weekly Wrap – 11/04/22
/in Weekly Wrap/by halyardThe Fed’s well publicized “leak” hinting that the Central Bank would raise the Fed Funds rate by 75 basis points this week, but that another hike of equal magnitude in December meeting was not a certainty proved at least partially correct. The committee did raise rates by 75 basis points and, with it, offered a new sentence to the statement: “In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy…” It was a written acknowledgment that the committee realizes that they have already tightening aggressively and, importantly, policy change works with a lag. However, Chairman Powell’s tone 30 minutes later, at the post-meeting press conference, was decidedly hawkish. We weren’t the only managers to be fooled by the head fake. Bond traders immediately took rates higher. May 2023 Fed Fund futures had rallied to 4.805% on the day of the “leak,” but have since reversed and are closing out the week at 5.12%. Similarly, the 2-year note which traded down to recent low of 4.30% reversed violently and are closing out the week at roughly 4.71%, the high for the year.