Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
9/29/23 – Rising rates leaves fixed income market the most attractive since 2009
Bonds were under intense selling pressure for most of this week in what could only be described as a delayed reaction to the “higher for longer” message delivered by Chairman Powell last week. The old 2-year note (August 2025 maturity) traded as high as 5.19% before closing the week at 5.11%. The 2-year/30-year yield spread continues to dis-invert, closing the week at -35 basis points.
With the rise in rates, the average mortgage rate hit a 23-year high of 7.31%, up from last week’s high of 7.19%. The rise in the cost of financing a home will offer no solace to the beleaguered housing market.
Economic data for the week was mixed with the confidence surveys and housing data coming in below expectations, but the jobs market continued to show strength.
The various Fed members that spoke during the week echoed Chairman Powell’s comments from last week, saying that another rate hike may be possible while suggesting the possibility of a soft landing for the economy. Minneapolis Fed Governor Kashkari specifically said, “the resilience of the US economy has been surprising”, but he then said that he sees a 40% probability that the Fed will need to raise interest rates further.
Next week kicks off the final quarter of the year and next Friday the BLS will release the September employment report. The number of new jobs created, which has been below 200,000 for seven of the last eight months, is expected to again fall below 200,000. Despite the persistently low initial claims for unemployment insurance the consensus expectation is that only 168,000 new jobs will be added in the month.
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 – 6/23/23
/in Weekly Wrap/by halyardHawkishness dominated the conversation this week as Chairman Powell presented the annual state of the economy to Congress. His comments were broadly in line with his post-FOMC comments from last week, with emphasis that the June pause was just that and that the overnight rate is likely to rise further later this year, perhaps even twice. The market took notice, pushing the 5-year Treasury note above 4.0% for the first time since February. Similarly, the April 2024 Fed Fund future traded above 5.00% this week as traders speculated that the overnight rate will remain high into next year.
Halyard’s Weekly Wrap – 6/16/23
/in Weekly Wrap/by halyardChairman Powell must have re-watched the May 3rd post-FOMC press conference and not liked what he saw. Recall that he was called out by CNBC’s Steve Liesman for his tepid answer when questioned about his knowledge of the issues surrounding Silicon Valley Bank. His demeanor at the Wednesday conference was quite the opposite. His first words, delivered in a forceful tone were “My colleagues and I remain squarely focused on our dual mandate…”, as if daring any of the reporters to assume otherwise.
Halyard’s Weekly Wrap – 6/9/23
/in Weekly Wrap/by halyardIn a week devoid of market-moving news, the S&P 500 continued what some are calling a breakout rally. The index is closing less than 1% below the all-time high of 4325 touched last August. The rally is surprising given that the Fed Funds futures market is anticipating at least one more rate hike by the Fed. The Fed has been in their quiet period this week, so traders were forced to speculate on what may have changed in their thinking. As we closed out the week last Friday, Fed speakers seemed divided on another rate hike at the June meeting. They are going to be challenged to make a snap decision as the CPI index for May is released on the morning of their first day of deliberations.
Halyard’s Weekly Wrap – 6/2/23
/in Weekly Wrap/by halyardThe best news of the week is that the debt ceiling issue has been resolved, at least until January 2025. The news eased investors fear that a default by the U.S. government would collapse the entire financial system. We won’t have to worry about that again for another 18 months. As expected, the default premium investors built into the front end of the bill curve has entirely vanished and nearby bills are trading near 5% – off the high of 7% touched just two weeks ago.
Halyard’s Weekly Wrap – 5/26/23
/in Weekly Wrap/by halyardOur expectation that traders would overlook fundamental data this week and instead focus on the debt ceiling stalemate proved prescient. The one release that took the market by surprise were the minutes of the May FOMC meeting. Thinking back to the Q&A session that followed that meeting, we interpreted Powell’s comments as closing the door on a June rate hike, but the minutes told a different tale. The Bloomberg story following the release read “Officials were divided over path of rates with more favoring a pause.” “More” is clearly not a consensus and traders immediately took notice and hit the bid in the futures market.
Halyard’s Weekly Wrap – 5/19/23
/in Weekly Wrap/by halyardThe headline economic report this week was Retail Sales and, for the most part, it told the story of a resilient consumer. The headline result rose 0.4% over the March reading, which you may recall was an abysmal -1.0%, month-over-month. March’s outcome was revised to a simply dreadful -0.7%. On balance, the market ignored the data, choosing instead to obsess about the debt limit impasse. Treasury Secretary Yellen reiterated her concern that the U.S. would default as soon as June 1st if an agreement to raise the ceiling isn’t reached before then. The Treasury Bill market has priced in a default, with early June Bill maturities offering a yield-to-maturity of as much as 5.5%, more than 0.50% higher than Bills maturing a month later. Ironically, the rest of the yield curve, as well as the stock market are trading as though an agreement of the ceiling will be reached. We agree that a deal is most likely to be reached and the market will again return to trading on fundamentals, but as we get closer to the drop dead date, we expect that volatility will rise.