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 – 01/28/22
/in Weekly Wrap/by halyardAs economist debate the message Chairman Powell delivered to investors on Wednesday, the fact remains that the Fed continues to pursue emergency monetary policy. For evidence, one need look no further than the bi-weekly System Open Market Account Holdings report that was released this past Wednesday. The report, essentially the Fed’s balance sheet, has swelled to $8.3 trillion, up from $7.74 Trillion on September 1st.
Halyard’s Weekly Wrap – 01/21/22
/in Weekly Wrap/by halyardHappily, there’s been a dearth of Central Bank speeches this week, and that’s been mostly good for the bond market. Last week the investment community worked to digest the possibility of four rate hikes this year. We remain skeptical that the Fed is able to endure the pressure such a string of rate hikes would exact on the equity market. In fact, we wonder how the fed is feeling about the 7% year-to-date drawdown of the S&P 500. At any rate, we’ll know next Wednesday afternoon as the Fed concludes their first Open Market Committee meeting of the new year. As we’ve written recently, historically the Fed, having admitted that inflation has proven more stubborn than anticipated and with an economy going gangbusters, would tighten policy immediately.
Halyard’s Weekly Wrap – 01/07/22
/in Weekly Wrap/by halyardFor the second month in a row the employment reports told two conflicting stories. The establishment survey came in at less than half of consensus expectation at 199,000 new jobs, while the household measure registered 651,000 new jobs in the month. That measure was enough to push the unemployment rate down to 3.9%, and within a “chip shot” of the post financial crisis low of 3.5%. That comes on the back of the surprisingly hawkish minutes of the December 15th Fed meeting. Not only did the minutes solidly indicate a March liftoff in Fed Funds, the committee apparently had a meaningful discussion on the appropriate size of the Fed balance sheet under normal circumstances and how fast they would allow a runoff of maturing securities.
Halyard’s Weekly Wrap – 12/23/21
/in Weekly Wrap/by halyardThe week started with the markets panicky that the omicron variant was going to drive the world back into lockdown, but that fear has subsided going into the last trading day of the holiday shortened week. The long bond is challenging the high yield of the month, trading at a yield-to-maturity of 1.90%, but still solidly below 2.0%. Economic data this week, all secondary in importance, continues to point to a robust economy. Investors seem to be turning a blind eye to three projected rate hikes, as the S&P 500 is again within basis points of another all-time high.
Halyard’s Weekly Wrap – 12/17/21
/in Weekly Wrap/by halyardAs expected, Chairman Powell turned “tough” at the post-Open Market Committee meeting this week and announced the accelerated wind-down of the Fed open market purchases. Moreover, the so-called “dot plot”, the committee’s forecast for interest rates, is projecting three rate hikes in 2022 and three more in 2023. We would have preferred to hear that message last January, but Powell failed to take action despite the rise of inflation and accelerating economy.
Halyard’s Weekly Wrap – 12/10/21
/in Weekly Wrap/by halyardTreasury yields drifted higher and stocks closed at or near record highs in somewhat muted trading this week. The price action was a little surprising given the outsized economic data reported. The least watched, but one of our favored measures, the Job Openings and Labor Turnover Survey (JOLTS), counted 11,033,000 available and unfilled jobs in the economy. That was only the second instance that JOLTS topped more than 11 million. The second economic surprise was initial jobless claims for unemployment insurance which counted 184,000 applicants for the week ended December 4th.