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 – 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.