Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
09/25/26 –
The price action in the bond market this week has been nothing short of shocking. The two-year Treasury note is yielding 4.87%, 15 basis points higher than last Friday’s close and 56 basis points higher than where it was trading on the first of the month. Similarly, the 30-year bond is yielding 5.49%, 19 basis points higher on the week and 30 basis points higher since September 1st.
The catalyst was the release of the S&P purchasing manager surveys on Tuesday. The service and manufacturing surveys were much higher than expected and the composite survey came in at 58.4, the highest level in 5 years.
Further contributing to the bearish sentiment was the parade of FOMC members speaking publicly, with their warnings about inflation, and commenting that the overnight rate will need to be raised multiple times. Following last week’s rate rise, the conventional wisdom seemed to
have settled that the Fed would raise the overnight rate one more time and then be done. Fed fund futures are now indicating that the overnight rate will be approximately 100 basis points higher by next June.
Behind the scenes the bearish sentiment carried over into the 5-year, and 7-year note auctions. On Wednesday the $70 billion 5-year note auction was met with tepid demand. The auction cleared at 5.033%, a yield that was 3.10 basis points above where it was trading at auction time. That yield differential, or “tail” in bond parlance, was the second highest on record.
What’s remarkable is that the debacle that transpired in bonds had little impact across the broader capital markets. The S&P 500 continues to trade just below its record high, the dollar is modestly higher, and gold is modestly lower. That the equity market didn’t react to the spike in rates is especially surprising. The spike is likely to impact growth, which in turn is likely to impact profits.
Next week will bring a close to the third quarter and the BLS will make a quick turnaround and release the September jobs report on October 2nd. The expectation is that there will be little give back to the surprisingly strong August report, and that 100,000 jobs were added in September. The unemployment rate is expected to remain at 4.1%.
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 – 10/28/22
/in Weekly Wrap/by halyardLast week’s Fed leak that they would consider slowing the trajectory of rate hikes at the November 2nd FOMC meeting continued to dominate trading this week. Consensus seems to be developing that the recent softening of economic data will force them to temper their hawkishness and will raise the overnight rate 75 basis points next week and another 50 basis points in December. Reflecting that, the 5-year note fell to 4.06% before closing the week at 4.18%, on the back of a stellar auction on Wednesday. The auction cleared at 4.192%, through the presale when-issued yield of 4.21. The bid to cover rose to 2.48 times versus 2.27 times at the last auction, indicating that demand was high
Halyard’s Weekly Wrap – 10/21/22
/in Weekly Wrap/by halyardA Wall Street Journal story released this morning suggested the Fed would raise rates by 75 basis points at the November FOMC meeting but would then evaluate the need and magnitude of a December rate hike. The market had been anticipating 75 basis point hike at each of the meetings. As we’ve seen in the past, most notably in June when the Fed leaked that they intended to raise rates by 75 basis points, the Fed will leak their intentions in an effort to prepare the market for a change. Whether it was a deliberate signal or cover for St Louis Fed President Bullard’s ethical gaffe, the market heard it loud and clear. The two-year note fell 14 basis points on the day as did Fed Fund futures. The peak in Fed Fund futures continues to be May 2023.
Halyard’s Weekly Wrap – 10/14/22
/in Weekly Wrap/by halyardThere was precious little for the Fed to celebrate this week. The all-important employment report has been relegated to second tier status as the producer and consumer inflation measures take center stage as the most important measure of the Fed’s success, or as is the case in this week’s report, failure. Both measures came in above expectations and didn’t really offer any indication that the rate hikes to date have been successful. The markets reacted mostly as expected. The 30-year bond, after a brief short covering rally on the day of the CPI release is closing the week just a basis point below 4.00%. Similarly, the 2-year note is closing the week at 4.50%. Fed Fund futures reset materially higher, with the May 2023 contract indicating a peak Fed Funds rate of 4.935%.
Halyard’s Weekly Wrap – 10/07/22
/in Weekly Wrap/by halyardHigher rates for longer was the concise message out of the Federal Reserve this week. After an attempt at rallying on Monday, both stock and bond prices rose with quarterly rebalancing and short covering, markets again succumbed to the Fed’s message by the week’s end. The S&P 500 finished up 5.5% higher by Tuesday evening and the yield to maturity on the 2 year US Treasury Note finished lower by 17bps to close October 4th at 4.09%. The rallies were driven in part by the 3rd shot at a narrative that encompasses a central bank on the cusp of slowing the pace of rate hikes.
Halyard’s Weekly Wrap – 09/30/22
/in Weekly Wrap/by halyardChaos erupted overnight Sunday in the U.K. as investors reacted harshly to announced tax cuts and sent Gilt interest rates soaring. The U.K. is besieged with a similar inflation problem as the rest of the world and the proposed tax would likely worsen rising prices. By Tuesday morning the 10-year note was a full 100 basis points higher in yield before the Bank of England announced that they would intervene and buy Gilts. After all was said and done, the U.K. 10-year ended the week 20 basis points lower at 3.81%, but not before “dinging” the U.K. government’s willingness to fight inflation at whatever cost.
Halyard’s Weekly Wrap – 09/23/22
/in Weekly Wrap/by halyardAs was expected, the Fed raised the overnight lending rate corridor by 75 basis points, to 3.0%-3.25% and in decidedly hawkish post-meeting press conference, the Chairman signaled that they are not yet close a peak in the rate. It was communicated that Fed funds would likely end the year at 4.25%. That news rocked the Treasury market with the 2-year note closing the week 32 basis points higher at 4.19%, just off the intraweek high of 4.25%. The yield curve further inverted, closing at a -57 basis points, just a shade below the -75 basis points touched in May 2000.