Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
02/27/26 –
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing”. – Chuck Prince, CEO Citigroup – July 2007
There were opposing stories driving the capital markets this week with news of a continued deterioration in the private credit space being offset by a continued flow of cash into the fixed income market.
The latest credit blowup is the U.K. based Market Financial Solution Ltd. Like the high-profile collapses of First Brands Group and Tricolor Holding last year, MFS appears to be guilty of using the same collateral for multiple loans resulting in what is said to be an approximately GBP 930 million shortfall. While not enough to cause a systemic panic, the loss has again brought the topic of questionable credit practices to the fore, and with it the riskiness of private credit.
Despite that concern, the investment grade fixed income market continues to see heightened demand, especially in the short end of the yield curve. The demand for short paper pushed the 2-year note to a fresh low of 3.38%, which is somewhat perplexing given that one-month Treasury Bills offer a rate of 3.67%. Typically, the logic behind an inverted 2-year note is the expectation that the overnight rate is going to fall precipitously, such that the rate earned over the 2-year holding period would exceed that earned by rolling Treasury Bills. With the unemployment rate seeming to stabilize, inflation no longer falling, and corporate earnings continuing to grow at a healthy pace, we don’t think that’s likely. While Fed Fund futures are pricing in more than two 25 basis point rate cuts by next year, we think at most we’ll see only a single cut.
Of the secondary economic data released this week the Chicago PMI business conditions index stood out. The index registered 57.7 at the last reading, well above the 37.3 low touched in November 2025. Could it be that businesses are becoming more confident? We will watch the other confidence measures to see if they show improvement as well.
Economic data to be released next week includes the Retail sales measure for January, which is expected to be flat versus the prior month, and non-farm payrolls for February – which is expected to show a gain of 60,000 new jobs for 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 Year End Wrap – 12/31/23
/in Weekly Wrap/by halyardIt’s been a remarkable year in the capital markets! Last December, year-over-year consumer price inflation was running 6.5% and the Federal Reserve was solidly in “higher for longer” mode with the committee prepared to continue to raise rates to quell inflation. The ten-year Treasury opened 2023 yielding 4.48%, ticked up to a high of 4.65% early in the year, before ultimately settling at 3.88%. The Fed communication has changed dramatically in the last 12 months. They dropped the higher for longer mantra this month, instead communicating that they anticipate three rate cuts in the coming year. Let’s hope they’re not premature in their abrupt policy change. By several measures, the economy continues to run hot, especially employment. It has become clear that there’s a worker shortage in the United States. The unemployment rate in November was 3.7%, just above the all-time low. The Fed usually doesn’t cut rates when unemployment is near a cycle low. But this Fed has proved that they have no interest in any rules-based policy.
Halyard’s Weekly Wrap – 12/22/23
/in Weekly Wrap/by halyardThe Euphoria from last week’s news that the Fed was done raising interest rates and expects to cut rates by 75 basis points next year continued into this week. In anticipation of those cuts, the entire yield curve has priced approximately 100 basis points lower. The knock-on effects can be found almost everywhere; the S&P 500 is less than 1.0% off an all-time high, mortgage rates are back below 7.0%, and consumer confidence as measured by the Conference Board’s present situation index is skyrocketing. But we wonder if that euphoria is unwarranted. After all, the move lower in rates is an easing of financial conditions, coming while year-over-year core CPI is 4% and pressure for higher wages is unrelenting.
Halyard’s Weekly Wrap – 12/15/23
/in Weekly Wrap/by halyardThis was a week when investors would have done well ignoring the economic calendar and instead focused on the summary of economic projections, more widely known as the “dot plot.” Released along with the minutes of the open market committee meeting on Wednesday, the dot plot showed a change in thinking from the committee. Investors had been speculating that the Fed had reached the peak of their tightening cycle and the FOMC release confirmed that. The dot plot released in September showed more than half of the committee expected an additional rate hike this year. The December chart indicated that no members anticipate any additional hikes this year. Moreover, the median view is that there will be 75 basis points of rate cuts in 2024. With that decidedly dovish statement, stock and bond markets continued their bullish run. The five-year Treasury note is trading below 4%, closing the week out at 3.92%, while the S&P 500 continues its parabolic rise, rallying more than 15% since the last week of October.
Halyard’s Weekly Wrap – 12/8/23
/in Weekly Wrap/by halyardThis morning’s employment report delivered a curveball to market participants who had been looking for continued economic moderation. That was not to be the case. The economy added 199,000 new jobs in November, up from the previous month and 14,000 more than the consensus had been expected. Average hourly earnings rose 4.0% year-over-year, as it did the prior month. But what really grabbed the investor’s attention was the downtick in the unemployment rate, which came in at 3.7%, 0.2% below the previous month. The large change in household employment, 747,000 new jobs reported, and the change in the size of the workforce, 532,000 new entrants, was responsible for the decline.
Halyard’s Weekly Wrap – 12/1/23
/in Weekly Wrap/by halyardThere were two news stories this week that made us double check the calendar to ensure that we hadn’t transported back sixteen years to pre-crisis 2007. The first had to do with the Federal Housing Finance Agency (FHFA) and the second was the proliferation of private credit.
Halyard’s Weekly Wrap – 11/24/23
/in Weekly Wrap/by halyardThe upward trajectory of stock prices continued this week despite what some observers called hawkish Fed minutes. We’re hesitant to side with that view simply because there was no deviation from the comments that Chairman Powell communicated at the post-meeting press conference. The committee remains vigilante against any signs that economic growth or inflation is reaccelerating and will raise the Fed Funds rate again if needed.