Rates Complex Looking For Additional Policy And Economic Clarity

US rates peaked at the end of March and have been going sideways since mid April; German rates had been playing catchup with the US, rising on good macro data for the past couple of months, but peaked at the end of last week and have dropped since

Published May 28, 2021 5:09 PM ET

US 2-10 and German 2-10 In The Last 6 Months | Source: Refinitiv

QUICK US SUMMARY

Yield curve flattening, with the 1Y-10Y spread tightening -2.6 bp on the day, now at 154.0 bp (YTD change: +73.5)
1Y: 0.0410% (unchanged 0.0 bp)
2Y: 0.1406% (down 0.6 bp)
5Y: 0.7883% (down 2.6 bp)
7Y: 1.2477% (down 0.9 bp)
10Y: 1.5807% (down 2.6 bp)
30Y: 2.2632% (down 1.7 bp)
3-month USD Libor at 0.1314%, new all-time low

US MACRO RELEASES

1 Year Inflation Expectations (median) for May 2021 (UMICH, Survey) at 4.60
Change P/P for Apr 2021 (BEA, US Dept. Of Com) at -13.10, above consensus estimate of -14.10
Chicago PMI, Total Business Barometer for May 2021 (MNI Indicators) at 75.20, above consensus estimate of 68.00
Personal Consumption Expenditure, Change P/P for Apr 2021 (BEA, US Dept. Of Com) at -0.10
Personal Consumption Expenditure, Change P/P for Apr 2021 (BEA, US Dept. Of Com) at 0.50, in line with consensus
Personal Consumption Expenditure, Change P/P for Apr 2021 (BEA, US Dept. Of Com) at 0.60
Personal Consumption Expenditure, Change Y/Y for Apr 2021 (BEA, US Dept. Of Com) at 3.60
Personal Consumption Expenditure, Personal consumption expenditures less food and energy, Change P/P for Apr 2021 (BEA, US Dept. Of Com) at 0.70, above consensus estimate of 0.60
Personal Consumption Expenditure, Personal consumption expenditures less food and energy, Change Y/Y for Apr 2021 (BEA, US Dept. Of Com) at 3.10, above consensus estimate of 2.90
Personal Consumption Expenditure, Total, trimmed mean inflation rate (1-month annualized), Change M/M for Apr 2021 (Fed Reserve, Dallas) at 2.40
Retail Inventories Advance, Change P/P for Apr 2021 (U.S. Census Bureau) at 0.50
University of Michigan, 5 Year Inflation Expectations (median), Change Y/Y for May 2021 (UMICH, Survey) at 3.00
University of Michigan, Consumer Expectations Index, Volume Index for May 2021 (UMICH, Survey) at 78.80
University of Michigan, Consumer Sentiment Index, Volume Index for May 2021 (UMICH, Survey) at 82.90, in line with consensus
University of Michigan, Current Conditions Index, Volume Index for May 2021 (UMICH, Survey) at 89.40
US Adv Goods Trade Balance, Current Prices for Apr 2021 (U.S. Census Bureau) at -85.23
Wholesale Inventories Advance, Change P/P for Apr 2021 (U.S. Census Bureau) at 0.80

US FORWARD RATES

3-month USD Libor 5 years forward down 3.0 bp
US Treasury 1-year zero-coupon rate 5 years forward down 2.9 bp, now at 2.2757%
Short-term rates are expected to increase by 221.0 bp over the next 5 years, with slower hikes expected in the next 2 years

US INFLATION

TIPS 1Y breakeven inflation at 3.32% (down -0.3bp); 2Y at 2.84% (down -2.6bp); 5Y at 2.61% (down -3.0bp); 10Y at 2.41% (down -0.2bp); 30Y at 2.33% (up 0.3bp)
6-month spot US CPI swap up 2.0 bp to 4.495%, with a steepening of the forward curve

RATES VOLATILITY & LIQUIDITY

USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) down -2.1% at 74.8%
3-Month LIBOR-OIS spread down -1.3 bp at 6.3 bp (12-months range: 6.3-31.8 bp)

KEY INTERNATIONAL RATES

International rates that had been rising for a few weeks, in particular in the Eurozone, stalled this week and faded on Friday
Germany 5Y: -0.566% (down -1.3 bp); the German 1Y-10Y curve is 1.4 bp flatter at 45.6bp (YTD change: +30.1 bp)
Japan 5Y: -0.086% (up 0.5 bp); the Japanese 1Y-10Y curve is 0.1 bp steeper at 21.4bp (YTD change: +5.8 bp)
China 5Y: 2.920% (up 2.0 bp); the Chinese 1Y-10Y curve is 0.5 bp flatter at 53.6bp (YTD change: +7.2 bp)
Switzerland 5Y: -0.472% (up 3.5 bp); the Swiss 1Y-10Y curve is 2.2 bp steeper at 62.8bp (YTD change: +36.4 bp)