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 – 3/22/24
/in Weekly Wrap/by halyardAs expected, the FOMC left the Fed Funds corridor unchanged on Wednesday. Mildly surprising to us though, their economic forecast continues to indicate that they expect to cut the overnight rate three times this year. As we’ve written on numerous occasions, the job market remains robust, and the consumer price index has stabilized at the mid-3% level, well above the Fed’s stated target. The question being asked, is there an imminent threat to economic growth that the Fed is aware of, but the rest of the investing community is not? Especially since a popular financial conditions indicator, which aggregates broad financial conditions such as interest rates, equity prices, and credit spread is showing that financial conditions have eased since last fall. Why then is the Fed threatening to ease policy?
Halyard’s Weekly Wrap – 3/15/24
/in Weekly Wrap/by halyardThe bullish tone on which the bond market closed last week has completely reversed and is closing this week with a decidedly bearish resolve. The hope had been that the inflation measures this week would show further progress toward the Fed’s 2% target. That didn’t happen. Instead, the Consumer and Producer price indices both moved higher on a month-over-month basis in February. The core CPI index was 0.4% higher than the January measure, rounding to roughly 5.0%, a far cry from the Fed’s target.
Halyard’s Weekly Wrap – 3/8/24
/in Weekly Wrap/by halyardAt first glance the employment report for February was surprisingly strong. The expectation was that the economy would add 200,000 new jobs, up from an expected 188,00 last week. The actual change in payroll was 275,000. The year-over-year change in average hourly earnings was 4.3%, 0.1% lower than it registered last month but still an impressive uptick.
Halyard’s Weekly Wrap – 3/1/24
/in Weekly Wrap/by halyardThis week proved disappointing in that each day was jammed with economic data and a parade of Fed speakers and the market barely budged. After last week’s range-bound trading we felt certain that interest rates would break out of their recent band. The best that traders could manage was a rally in the 2-year note taking the yield-to-maturity of that issue down to 4.53%, the lowest yield in nearly three weeks.
Halyard’s Weekly Wrap – 2/23/24
/in Weekly Wrap/by halyardThis was a quiet week for the fixed income market, with the entire yield curve closing within a few basis points of last Friday’s close. The only real action came between late Wednesday afternoon into today’s close, as investors digested the minutes of the January FOMC meeting. As expected, the minutes echoed Chairman Powell’s post-meeting press conference comments that communicated that a rate cut was not imminent. That was enough to push the long bond up to 4.48%, the highest yield so far this year. Contributing to the rise was initial claims for unemployment insurance which totaled 201,000 for the week. That was the second lowest tally of 2024 and further evidence that the economy is not poised to enter a recession. But that wasn’t enough to offset dip-buying on Friday. On the week, the 30-year bond closed six basis-points lower, finishing at 4.37%.
Halyard’s Weekly Wrap – 2/16/24
/in Weekly Wrap/by halyardIn last week’s wrap we cautioned that despite the core PCE deflator touching the Fed’s target, there was a risk that the CPI wouldn’t show the same improvement. Economists had forecasted that the consumer inflation measure would rise to 3.9% year-over-year. That’s exactly where it was reported, and the month-over-month core registered 0.4%. Despite matching the forecast, traders seemingly weren’t prepared for that result because yields across the curve skyrocketed. Obviously, the report took the possibility of an early Fed rate cut off the table. Fed fund futures are now indicating that the first cut has been pushed off to this summer. The 2-year note, which had traded as low as 4.14% last month, shot up to 4.65% on the news, before closing the week half of a basis point higher at 4.655%. The inflation news also took the “wind out of the sails” of the equity market, with the S&P 500 plunging 68 points by the close of business on Tuesday. That entire move has been erased though, with the index closing roughly unchanged for the week.