Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
03/13/26 – Bond yields materially higher as market fixates on energy’s inflationary impact. This higher for longer scenario will depend on the length of the US / Iranian conflict.
The war with Iran is concluding its second week and hopes for a speedy conclusion have diminished and with it a return to normalcy for the markets. Interest rates have skyrocketed, with the two-year note closing the week 35 basis points higher from the first of the month. For the first time in nearly four years the spread between the 3-month Treasury Bill and the 2-year Treasury note is positive. That’s a telling signal that traders think that the Fed is done cutting rates. The reasoning is that with crude oil trading at an elevated level, gas prices are going to filter into inflation and that the Fed is not going to cut rates with inflation rising. That’s especially true if energy begins to filter through into the broader economy. The flaw in that thinking is that if the energy becomes sustainably expensive, the already faltering economy will likely tip into recession and the Fed will be forced to cut rates.
Economic data this week continues to send a mixed signal on growth and inflation. Month-over-month CPI ticked up to 0.3% from 0.2% in January, while the year-over-year measure was unchanged at 2.5%. Unfortunately, the Fed’s preferred inflation gauge, the core PCE price index rose 0.4% from the previous month and registered 3.1% year-over-year. That’s doesn’t give the Open Market committee justification to cut rates further.
Housing starts unexpectedly rose, but that outcome was tempered by a -5.4% drop in building permits, meaning the spike is going to be exactly that and not a sustained rise in home building. Also of note, the recent rise in Treasury rates has pushed the 30-year mortgage rate above the 6% level – quashing the recent refinance activity.
Also released this morning was the second look at Q4 GDP for 2025, which showed that growth was half of what was first reported, coming in at annualized rate of 0.7%. Personal consumption was also lower, from 2.5% to 2.0%. It appears that the Government shutdown did more economic harm than first estimated.
Next Wednesday is the conclusion of the March Open Market Committee meeting. The broad consensus is that they will leave the overnight rate unchanged. We expect that Chairman Powell will be peppered with questions about the price of oil, and we expect him to be even more evasive than usual. In passing, this will be Powell’s penultimate meeting as Chairman. He deserves credit for riding out the wrath of Trump and maintaining the Committee’s independence.
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 – 10/15/21
/in Weekly Wrap/by halyardThere was much to analyze this week with inflation coming in higher than expected and retail sales surprising to the upside. Equities once again pulled themselves off the mat and appear poised to go at least a few more rounds with greedy and fearful investors. Less obvious but quite telling is the yield curve flattening that took place. The spread between the 2-year note and the 30-year bond has flattened 18 basis points since last Friday. That’s a meaningful move and hints that investors are starting to position for a sooner than advertised interest rate hike.
Halyard’s Weekly Wrap – 10/08/21
/in Weekly Wrap/by halyardAt first glance the September unemployment report released on Friday looked wildly disappointing. It’s been described as “Disastrous” at several media outlets. Consensus was looking for 500,000 newly created jobs for the month, and to be honest, we would have taken the over on that bet. Instead the BLS reported that the economy generated 194,000 jobs for the period.
Halyard’s Weekly Wrap – 10/01/21
/in Weekly Wrap/by halyardFundamentals took a back seat to political in-fighting this week as the Republicans made it clear that they were going to do precious little to assist the Democrat’s goal of lifting the debt ceiling, keeping the government open for business, or passing Biden’s $3.5 trillion social stimulus. Interest rates moved higher across the curve as the uncertainty of fiscal policy spooked bond investors. The new 2-year note auction that was held on Monday was described by one pundit as “gruesome”, given the below average bid-to-cover ratio, and the yield at which it cleared, which was nearly a basis point above the yield asked at auction time. Following the auction, the yield-to-maturity of the 2-year note rose to 0.31%, before drifting back down to 0.266% to close out the week. That’s nearly double where the note traded last summer! Stocks fared worse, with the S&P 500 trading down about 2.5% for the week.
Halyard’s Weekly Wrap – 09/24/21
/in Weekly Wrap/by halyardWhile Chairman Powell and the Open Market Committee failed to signal a start to tapering open market purchases, they did inch closer. Powel described current economic condition as having mostly met the committees standard to begin to taper and suggested that an announcement would be made at the November meeting. Bond investors didn’t like the news and drove the yield on the 10-year note 15 basis points higher to end the week at 1.45%.
Halyard’s Weekly Wrap – 09/17/21
/in Weekly Wrap/by halyardEconomic data this week offered something for everyone. For those seeing the uptick in inflation as transitory, the Consumer Price Index data was not as bad as feared. The month-over-month CPI fell from 0.5% in July to 0.3% in August; arguably an improving trend, but still rising at an above target pace. The year-over-year rate also improved marginally falling from 5.4% in July to 5.3% in August. Again, right direction but still alarmingly high.
Halyard’s Weekly Wrap – 09/10/21
/in Weekly Wrap/by halyardWith the confluence of Labor Day on Monday and Rosh Hashana on Tuesday and Wednesday, we kicked off the week expecting a quiet one. Instead, corporations issued paper at a “break-neck” pace. For the week we saw 52 borrowers sell in excess of $76 billion in paper. Surprisingly, the large supply barely moved interest rates, as the 10-year Treasury note was less than 4 basis points higher for the week. The S&P 500 traded lower each successive day this week as forecasts for slowing economic growth dominated the headlines, but point-to-point the index was down approximately 1.00%. Hardly a correction!