Yield Rise At The Long End Of The US Curve, Unwinding Some Of Last Week's Flattening

The market is currently pricing in a 60% chance that the first 25bp US rate hike will happen before the end of 2022, with 3 hikes priced in by the end of 2023

Published ET

Economic Recovery & Global PMI | Source: IHS Markit

Economic Recovery & Global PMI | Source: IHS Markit

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  • Yield curve steepening, with the 1s10s Treasury spread widening 5.4 bp on the day, now at 140.8 bp (YTD change: +60.4)
  • 1Y: 0.0890% (unchanged)
  • 2Y: 0.2563% (up 0.4 bp)
  • 5Y: 0.8877% (up 1.2 bp)
  • 7Y: 1.2429% (up 3.1 bp)
  • 10Y: 1.4971% (up 5.4 bp)
  • 30Y: 2.1200% (up 10.3 bp)
  • US treasury curve spreads: 2s5s at 63.2bp (up 0.7bp today), 5s10s at 60.9bp (up 4.1bp today), 10s30s at 62.4bp (up 5.0bp today)
  • Treasuries butterfly spreads: 2s5s10s at -2.7bp (up 3.4bp today), 5s10s30s at 1.4bp (up 0.5bp today)


  • Chicago Fed National Activity Index for May 2021 at 0.29, below consensus estimate of 0.32
US Treasury Curve Spreads | Sources: ϕpost, Refinitiv dataRate hikes priced into USD OIS Curve | Sources: ϕpost, Refinitiv data


  • 3-month USD Libor 5 years forward unchanged
  • US Treasury 1-year zero-coupon rate 5 years forward up 7.3 bp, now at 2.0612%
  • 1-Year Treasury rates are now expected to increase by 195.8 bp over the next 5 years
  • The USD OIS forward curve (derived from the zero coupon curve) indicates that the possible timing of the first rate hike has shifted forward to Q1 2022 at the earliest (with a very small probability), with the most likely outcome being Q4 2022 /Q1 2023
Rate Hikes By Quarter Derived From USD OIS Curve | Sources: ϕpost, Refinitiv dataCumulative Hikes Over The Next 10 Years | Sources: ϕpost, Refinitiv dataUS Fed Funds Futures Implied Yields | Sources: ϕpost, Refinitiv data2s10s Forward Curve | Sources: ϕpost, Refinitiv data


  • TIPS 1Y breakeven inflation at 3.17% (up 5.2bp); 2Y at 2.69% (up 2.9bp); 5Y at 2.41% (up 0.1bp); 10Y at 2.27% (up 3.9bp); 30Y at 2.26% (up 2.9bp)
  • 6-month spot US CPI swap up 5.7 bp to 3.918%, with a steepening of the forward curve
Short term Inflation swap | Sources: ϕpost, Refinitiv dataShort term Inflation forward curve | Sources: ϕpost, Refinitiv dataUS TIPS Breakevens | Sources: ϕpost, Refinitiv data


  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 0.3% at 15.2%
  • 3-Month LIBOR-OIS spread up 0.1 bp at 5.1 bp (12-months range: 4.5-26.2 bp)
US Short term interest rates volatilities | Sources: ϕpost, Refinitiv dataICE BofA ML MOVE Indices | Sources: ϕpost, Refinitiv data


  • Germany 5Y: -0.558% (up 2.7 bp); the German 1Y-10Y curve is 1.5 bp steeper at 46.1bp (YTD change: +30.7 bp)
  • Japan 5Y: -0.096% (down -0.5 bp); the Japanese 1Y-10Y curve is 0.8 bp flatter at 16.0bp (YTD change: +1.8 bp)
  • China 5Y: 2.960% (down -2.5 bp); the Chinese 1Y-10Y curve is 2.0 bp flatter at 64.0bp (YTD change: +17.6 bp)
  • Switzerland 5Y: -0.521% (up 2.0 bp); the Swiss 1Y-10Y curve is 7.1 bp flatter at 50.4bp (YTD change: +25.0 bp)
Sovereign rates differentials | Sources: ϕpost, Refinitiv dataExpected Change (hikes) in the 1Y Rate over the next 5 years | Sources: ϕpost, Refinitiv data