Yield Curve Steepens and Short-Term Inflation Spikes After Biden Speech

Biden triggers fear of higher short-term inflation, though the forward curve is mostly unchanged

Published ET

Sources: ϕpost, Refinitiv data

Sources: ϕpost, Refinitiv data

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  • United States GDP Chain Price SAAR Q/Q (First Preliminary) higher than expected: actual +4.1% vs consensus +2.6%
    (prior +2.0%)
  • United States Initial Claims pretty much in line: actual 553K vs consensus 555K (prior 566K)
  • United States Pending Home Sales M/M were lighter than expected: actual +1.9% vs consensus +3.8% (prior -11.5%)
  • Eurozone April Economic Sentiment indicator came in at 110.3 vs consensus of 102.2 and the prior month revised to 100.9 from 101.0.
  • EU M3 money supply for March came in at +10.1% y/y vs consensus of +10.2% and a prior +13.3%.
  • German April unemployment increased by 9K vs consensus of -10K and prior month reading -8K. (unemployment rate in line at 6.0%)


  • Yield curve steepening, with the 1Y-10Y spread widening 3.0 bp on the day, now at 158.8 bp (YTD change: +67.2 bp)
  • 1Y: 0.0533% (unchanged)
  • 2Y: 0.1641% (down 0.2 bp)
  • 5Y: 0.8668% (up 1.4 bp)
  • 7Y: 1.3274% (up 2.6 bp)
  • 10Y: 1.6415% (up 3.0 bp)
  • 30Y: 2.3043% (up 1.4 bp)  


  • 3-month USD Libor 5 years forward up 2.3 bp
  • US Treasury 1-year zero-coupon rate 5 years forward up 5.1 bp, now at 2.3766% (meaning that short-term rates are expected to increase by 231 bp over the next 5 years)
Sources: ϕpost, Refinitiv dataSources: ϕpost, Refinitiv dataSources: ϕpost, Refinitiv dataSources: ϕpost, Refinitiv data


  • The front end of the inflation swap curve rose sharply today, but the rest of the curve is well anchored and barely moved (still the same market view of transitory inflation spike rather than lasting inflation)
  • TIPS  1Y breakeven inflation at 2.71% (up 1.7bp); 2Y at 2.77% (up 0.4bp); 5Y at 4.06% (up 142.6bp);   10Y at 2.41% (down -0.2bp); 30Y at 2.30% (down -0.3bp)
  • 6-month forward inflation swap up 33.4 bp to 3.602%


  • Rates volatility is showing a divergent picture at the moment, with the implied volatility of CME Eurodollar options rising and OTC swaptions volatility falling. We tend to follow the latter more closely, meaning that volatility has been falling in recent weeks (a view that also aligns with the MOVE indices).
  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) unchanged on the day at 49.4%.  
  • Liquidity is also plentiful, and there is no stress in the funding markets (3-month LIBOR-OIS spread at a very low level)

Sources: ϕpost, Refinitiv dataSources: ϕpost, Refinitiv dataSources: ϕpost, Refinitiv data


  • Germany 5Y: -0.560% (up 2.4 bp); the German 1Y-10Y curve is 4.8 bp steeper at 46.2bp (YTD change: +30.5 bp)
  • Japan 5Y: -0.082% (up 9.0 bp); the Japanese 2Y-10Y curve is 22.4 bp flatter at 21.9bp (YTD change: -14.6 bp)
  • China 5Y: 2.980% (down -1.3 bp); the Chinese 1Y-10Y curve is 2.4 bp steeper at 57.4bp (YTD change: +11.0 bp)
  • Switzerland 5Y: -0.522% (up 2.5 bp); the Swiss 1Y-10Y curve is 3.8 bp steeper at 57.0bp (YTD change: +30.6 bp)
Sources: ϕpost, Refinitiv dataSources: ϕpost, Refinitiv data