Rates Up Slightly, Short-Term Inflation Hedges Keep Climbing

Fed VC Clarida still views inflation as "likely to be transitory", sees the economy growing 6.5%-7% this year

Published May 17, 2021 5:59 PM ET

Inversion of the inflation curve rising to new record | Sources: ϕpost, Refinitiv data

QUICK US SUMMARY

Yield curve steepening, with the 1Y-10Y spread widening 1.7 bp on the day, now at 160.4 bp (YTD change: +80.0)
1Y: 0.0480% (unchanged)
2Y: 0.1551% (up 0.6 bp)
5Y: 0.8355% (up 1.8 bp)
7Y: 1.3019% (up 1.9 bp)
10Y: 1.6522% (up 1.7 bp)
30Y: 2.3648% (up 1.8 bp)

US MACRO RELEASES

NAHB/Wells Fargo Housing Market Index for May 2021 (NAHB, United States) at 83.0, in line with estimates
Net flows total, Current Prices for Mar 2021 (U.S. Dept. Treas.) at 146.4
Net foreign acquisition of long-term securities, Current Prices for Mar 2021 (U.S. Dept. Treas.) at 224.7
Net purchases (net long-term capital inflows), total, Current Prices for Mar 2021 (U.S. Dept. Treas.) at 262.2
Net purchases of U.S. treasury bonds & notes, total net foreign purchases, Current Prices for Mar 2021 (U.S. Dept. Treas.) at 118.9
New York Fed, General Business Condition for May 2021 (FED, NY) at 24.3, above consensus estimate of 23.9

US FORWARD RATES

3-month USD Libor 5 years forward up 2.3 bp
US Treasury 1-year zero-coupon rate 5 years forward up 3.1 bp, now at 2.3603%
US rate hikes expected to start in Q4 2022 and to increase by 229.4 bp over the next 5 years

US INFLATION

TIPS 1Y breakeven inflation at 3.35% (up 8.5bp); 2Y at 2.96% (up 7.5bp); 5Y at 2.81% (up 5.5bp); 10Y at 2.54% (up 2.4bp); 30Y at 2.39% (up 0.5bp)
6-month forward inflation swap up 10.2 bp to 4.11%

RATES VOLATILITY & LIQUIDITY

USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 5.9% at 59.7%
3-Month LIBOR-OIS spread up 0.7 bp at 9.7 bp (12-months range: 9.0-34.4 bp)

KEY INTERNATIONAL RATES

Germany 5Y: -0.509% (up 0.5 bp); the German 1Y-10Y curve is 0.7 bp steeper at 51.4bp (YTD change: +35.6 bp)
Japan 5Y: -0.099% (down -0.5 bp); the Japanese 1Y-10Y curve is 0.2 bp flatter at 20.5bp (YTD change: +5.9 bp)
China 5Y: 2.943% (up 1.0 bp); the Chinese 1Y-10Y curve is 1.0 bp flatter at 57.8bp (YTD change: +11.4 bp)
Switzerland 5Y: -0.472% (up 1.1 bp); the Swiss 1Y-10Y curve is 11.5 bp steeper at 67.5bp (YTD change: +41.1 bp)