Melt 1 tablespoon of butter in a small saucepan over medium heat. Sauté the shallot until it just starts to brown. Pour in the sherry and scrape up any brown bits on the bottom of the pan. Simmer until the liquid has reduced by half. Add the heavy cream and Dijon mustard and continue to simmer until the sauce thickens. Season to taste with salt and freshly ground black pepper.
If you want a very smooth sauce, strain the sauce through a fine strainer before proceeding. Otherwise, just stir in the remaining butter and tarragon and serve.