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 – 6/21/24
/in Weekly Wrap/by halyardA mid-week U.S. holiday, summer vacations, and noisy economic data all led to mostly unchanged bond and stock markets this week. For the week, the 2-year/30-year yield curve was 2.5 basis points less inverted, closing the week at -33.5 basis points, with the entire move coming from a marginal drop in the yield-to-maturity of the 30-year bond. The S&P 500 briefly traded into record territory but is closing the week about 1% off of the 5,505.53 record touched on Thursday.
Halyard’s Weekly Wrap – 6/14/24
/in Weekly Wrap/by halyardThe consumer price index (CPI) for May was released Wednesday, the morning of the FOMC meeting. The one-month change to the index was 0.0% and the headline year-over-year index rose 3.3%, a 0.1% improvement over last month’s reading. Investors interpreted the change as a big step in the right direction and rallied stocks and bonds, pushing the yield curve down to recent lows and the S&P 500 to a fresh all-time high.
Halyard’s Weekly Wrap – 6/7/24
/in Weekly Wrap/by halyardThe investment community, lately, had bought into the narrative that the economy is slowing, and that the Fed was about to reengage in the rate cut conversation. The May employment report, released this morning, fully took the air out of that notion. After April’s report came in below expectation, economists were expecting the number of new jobs created for the month would total 180,000, with the low estimate at 120,000 and the high at 259,000. The actual number blew past those forecasts with 272,000 new jobs created in the month. The report was a little messy in that the household report showed a contraction of -408,000 jobs and the labor force shrunk by -250,000 workers causing the unemployment rate to tick up to 4.0%. We advise to look past that uptick due to a few nuances between the household and the establishment survey. The bottom line is the June jobs report changes the soft-landing narrative and further postpones the likelihood of a rate cut anytime soon.
Halyard’s Weekly Wrap – 5/24/24
/in Weekly Wrap/by halyardThe release of the May 1st FOMC minutes was as expected, with the members concurring that the rate of inflation is stubbornly stuck at levels above which they are comfortable. The second sentence of the minutes read “Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected and to a generally resilient economy,” That’s pretty much says it all. The economy continues to hum along despite the FOMC’s tightening of monetary policy. A Few economists continue to rumble that the Fed will need to again hike the overnight rate but that’s far from consensus.
Halyard’s Weekly Wrap – 5/17/24
/in Weekly Wrap/by halyardThe April consumer price index and the various subcomponents came in as expected offering relief to investors fearful of an upside surprise. The year-over-year headline measure showed that inflation cooled to 3.4% from the 3.5% reported in March. The change in direction was welcome news to the capital markets but the incremental improvement is hardly enough for the Fed to claim victory. There’s an old saying in the capital market “that one number does not make a trend” and that clearly applies to last month’s CPI. We’ll be watching the index through the summer to identify any potential trend.
Halyard’s Weekly Wrap – 5/10/24
/in Weekly Wrap/by halyardAfter last week’s repricing of the yield curve to again reflect the possibility of one rate cut this year, the interest market barely moved this week. The dearth of economic data allowed the 2-year/30-year yield curve to remain at a 20-basis point inversion with the 2-year notes closing the week modestly higher at 4.86%. That was good news for the equity market as the S&P 500 continued to rally and now stands less than 1% away from its all-time high as earnings releases dwindle to a trickle.