Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
05/23/25 – The Return of the Bond Vigilantes
This week was supposed to be a quiet one given the dearth of economic data and traders eager to commence the unofficial kickoff to the summer season. Instead, the news broke that Moody’s downgraded the credit rating of U.S. Treasury debt from AAA to AA1. While the move was largely symbolic, it did cause some disruption in the market as investors digested what it meant for allocations.
The main question has been is U.S. debt still considered risk-free. The answer is obviously “yes.” The U.S. dollar remains the world’s reserve currency, and the U.S. government retains the ability to collect tax revenue to repay its debt. However, the downgrade is a black eye to the government and its management of the economy going back to the financial panic of 2008. As is widely known the reaction to that crisis was to flood the economy with cash which continues to date. The debt/GDP ratio which stood at 80% in 2008, now tops 120% and is destined to continue to climb.
The initial reaction was a two-day drop in bond prices taking the yield of the 30-year bond, from 4.90% to 5.14%, as the financial media suggested that the bond vigilantes, as bond bears in the 1980’s were known, had returned. The long bond is closing in the middle of this week’s range at 5.04%, so the move doesn’t seem to be indicating the start of a prolonged bear market.
The parade of Fed speakers this week did little to clarify the committee’s next rate action, with the exception of the Atlanta Fed President Bostic who said he expects one Fed rate cut this year. Fed fund futures indicate one rate cut and a 50% chance of a second by year end.
Next week’s economic calendar is heavy with secondary and tertiary indicators but not likely to offer much direction to market prices.
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 – 09/03/21
/in Weekly Wrap/by halyardThe Bureau of Labor Statistics reported that the U.S. economy only added 235,000 new jobs is August. That was well below the anticipated 733,000 that was the consensus expectation. The immediate question is that number weak enough to convince the FOMC to postpone the tapering of open market purchases. Given the verbal jousting of the various Fed Presidents and Governors over the last few weeks, we conclude that the answer is a solid Maybe.
Halyard’s Weekly Wrap – 08/27/21
/in Weekly Wrap/by halyardPowell turned ever so mildly dovish in his comments to the virtual Jackson Hole Central Bank meeting on Friday. Despite a cadre of Central Bankers calling for an immediate halt to the open market purchases, the Chairman said the Open Market Committee is likely to commence tapering before the end of 2021. We believe the street had set up for more hawkish language, with some looking for an announcement that taper would begin in September. That was a foolish call! While the Fed doesn’t always look to the calendar in making policy announcements, the Chairman had to realize that doing so on the last Friday of August would rock the market. Instead Treasuries traded sideways which was enough to drive the S&P 500 to another record high.