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.
Contact Us
Location
399 Knollwood Road
Suite 107B
White Plains, NY 10603
Halyard’s Weekly Wrap – 11/17/23
/in Weekly Wrap/by halyardThe October Consumer Price Index, at the headline level, was a welcome panacea for investors’ perception of inflation. Coming in at 3.2% year-over-year, CPI was universally greeted as good news and interest rates plunged across the curve. Looking beyond the headlines at some of the subcomponents raised suspicions that some of the data had been “fudged.” Specifically, the price of health insurance. For many, November is healthcare renewal season and it’s never cheaper to renew than it was the previous year. And certainly not 33.98% cheaper as measured by the BLS report due to a change in calculation methodology. That was one of the subcomponents that stuck out in Tuesday’s report. Nonetheless, the bigger picture is that inflation is falling, and the Fed can take solace in that fact. Moreover, that inflation report pretty much takes a rate hike at the December meeting off of the table as reflected in the Fed Futures market. Futures are now implying no further hikes and a rate cut of 25 basis points by next summer.
Halyard’s Weekly Wrap – 11/10/23
/in Weekly Wrap/by halyardIn last week’s Weekly Wrap we mentioned, mid-page and in passing, that the Treasury Borrowing Advisory Committee (TBAC) had advised the Treasury to skew borrowing needs away from long maturities to the T-bill sector. Since then, we’ve been discussing whether the TBAC understated their concern. They certainly did as yesterday’s disastrous 30-year bond auction showed. The auction cleared at 4.769%, 5.3 basis points above the 4.716% level at which it was trading at auction time. That represents approximately a 1% fall in price and a meaningful hit to those that bought the bond just minutes before. The bid-to-cover ratio, a measure of demand was 2.236%, the lowest since 2021, foreign demand fell, and the dealer community bought 24.7% of the issue, the largest take down since 2021. In a sense, the large dealer takedown is a blessing for longs. Paradoxically, when the dealers are holding a big position, they tend to defend it by not selling. It’s known in the industry as having strong hands.
Halyard’s Weekly Wrap – 11/3/23
/in Weekly Wrap/by halyardWe had anticipated a volatile week given the barrage of economic releases and the Open Market Committee meeting but were surprised by the magnitude of the volatility. When we closed out last week the 2-year note, and 30-year bond were both trading above 5% and sentiment was decidedly bearish. The selloff continued into Tuesday with the 30-year touching 5.09%. But reversed on Wednesday with the ADP employment tally coming in at 113,000 newly created jobs, below the 150,000 expected. That started the short covering that dominated the balance of the week. For his part, Chairman Powell’s comments at the post-FOMC press conference were about as dovish as they’ve been since they started the hiking cycle although he didn’t rule out the possibility of one more rate hike. Despite that, the market interpreted his words as no more rate hikes.
Halyard’s Weekly Wrap – 10/27/23
/in Weekly Wrap/by halyardAs expected, the robust retail sales recorded over the last three months solidly contributed to the outsized Q3 GDP that came in at 4.9%, exceeding the 4.5% consensus expectation. The personal consumption component rose 4.0%, outpacing the 0.8% gain in the previous quarter. Digging into the details, the number isn’t as outrageous as at first glance. Firstly, the government measures the activity versus the previous quarter which, in itself, makes no sense. Every quarter has unique characteristics that impact spending patterns. Vacations in the third quarter, gift giving in the fourth. To adjust for that, the Bureau of Economic Analysis smooths the measure with a seasonal adjustment factor. We prefer, instead, to compare activity on a year-over-year basis and remove the smoothing. On a year-over-year basis, Q3 GDP expanded 2.9%, still an excellent outcome. Another consideration is that government spending represented about 25% of the gain for the quarter. At this stage of the expansion, we’d prefer to see that contribution closer to zero.
Halyard’s Weekly Wrap – 10/20/23
/in Weekly Wrap/by halyardThe retail sales measure for September that was released on Tuesday influenced trading for the entire week. The expectation was that sales would rise 0.3% over the August tally. The actual result was a 0.7% month-over-month gain, with the August measure revised to 0.8% from 0.6%. The three-month period has been a blockbuster for retailers. The irony is that the narrative has changed since Amazon had their supersale in July. The sales event exceeded expectations, leading to forecasts that it cannibalized sales that would have occurred in August and September. That explanation has been recast that the Amazon sale actually reenergized consumers on-line shopping. Our take on it is that despite the sharp rise in interest rates over the last 18 months, the economy has yet to cool significantly.
Halyard’s Weekly Wrap – 10/13/23
/in Weekly Wrap/by halyardThe minutes of the September 19-20 FOMC were truly goldilocks-like. Comments included “Bank credit conditions appeared to tighten somewhat…but credit to businesses and households remained generally accessible,” “The imbalance between labor supply and demand appeared to be easing,” and of course “the U.S. banking system is sound and resilient.” The text echoed the answers delivered by Chairman Powell at the post-meeting press conference. There is a chance of one more rate hike this year and that rates will be held at a high level for an extended period. In short it read as though the committee was taking a victory lap for their engineering of a soft landing. Bond investors were delighted by the verbiage as witnessed in the collapse of the yield curve. The yield on the 10-year note fell to 4.63% from last Friday’s 4.80% close.