Rates

US Rates Rise Slightly, Mostly In The Belly Of The Curve

Looking at the USD OIS forward curve, the market is now pricing in almost 1 full rate hike by the end of 2022 and 3 rate hikes by the end of 2023

Published ET

Timing of rate hikes priced into the USD OIS forward curve over the next 5 years | Sources: ϕpost, Refinitiv data

Timing of rate hikes priced into the USD OIS forward curve over the next 5 years | Sources: ϕpost, Refinitiv data


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QUICK US SUMMARY

  • Yield curve steepening, with the 1s10s Treasury spread widening 1.6 bp on the day, now at 141.5 bp (YTD change: +61.0)
  • 1Y: 0.0840% (down 0.3 bp)
  • 2Y: 0.2700% (up 0.6 bp)
  • 5Y: 0.9150% (up 3.5 bp)
  • 7Y: 1.2535% (up 1.3 bp)
  • 10Y: 1.4987% (up 1.3 bp)
  • 30Y: 2.1062% (up 0.1 bp)
  • US treasury curve spreads: 2s5s at 64.5bp (up 2.9bp today), 5s10s at 58.4bp (down -2.2bp today), 10s30s at 60.8bp (down -1.1bp today)
  • Treasuries butterfly spreads: 2s5s10s at -6.5bp (down -5.1bp today), 5s10s30s at 2.3bp (up 0.9bp today)
  • Strong 7-Year Treasury auction with a minor stop-trough of 0.3bp: high yield of 1.264% (vs 1.285% prior), non-dealer bidding of 81.3% with direct bids at 21.3% (vs 20.7% prior), indirects at 60.0% (vs 59.6% prior), bid-to-cover of 2.36 (vs 2.41 prior)

Sources: phipost, Refinitiv data

The fall in the 2s5s10s butterfly spread illustrates how strong rates have been in the belly of the curve over the past week

US MACRO RELEASES

  • Corporate Profits, Profits after tax total, Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 1.70%
  • GDP, Total-final (Unrevised), Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 6.40 %, in line with consensus estimate
  • Implicit Price Deflator, GDP, Total-final, Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 4.30 %, in line with consensus estimate
  • Jobless Claims, National, Continued for W 12 Jun (U.S. Dept. of Labor) at 3.39 Mln, below consensus estimate of 3.47 Mln
  • Jobless Claims, National, Initial for W 19 Jun (U.S. Dept. of Labor) at 411.00 k, above consensus estimate of 380.00 k
  • Jobless Claims, National, Initial, four week moving average for W 19 Jun (U.S. Dept. of Labor) at 397.75 k
  • Kansas Fed, Current composite index for Jun 2021 (FED, Kansas) at 27.00
  • Kansas Fed, Current production index for Jun 2021 (FED, Kansas) at 30.00
  • Manufacturers New Orders, Durable goods excluding defense, Change P/P for May 2021 (U.S. Census Bureau) at 1.70 %
  • Manufacturers New Orders, Durable goods excluding transportation, Change P/P for May 2021 (U.S. Census Bureau) at 0.30 %, below consensus estimate of 0.80 %
  • Manufacturers New Orders, Durable goods total, Change P/P for May 2021 (U.S. Census Bureau) at 2.30 %, below consensus estimate of 2.80 %
  • Manufacturers New Orders, Nondefense capital goods excluding aircraft, Change P/P for May 2021 (U.S. Census Bureau) at -0.10 %, below consensus estimate of 0.60 %
  • Personal Consumption Expenditure, Profits after tax total-final, Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 11.40 %
  • Personal Consumption Expenditure, Total-final, Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 2.50 %, in line with consensus estimate
  • Personal Consumption Expenditure, Total-final, Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 3.70 %, in line with consensus estimate
  • Retail Inventories Advance, Change P/P for May 2021 (U.S. Census Bureau) at 0.90 %
  • Total-final, Change P/P for Q1 2021 (BEA, US Dept. Of Com) at 9.20 %, below consensus estimate of 9.50 %
  • US Adv Goods Trade Balance, Current Prices for May 2021 (U.S. Census Bureau) at $US -88.11 bn
  • Wholesale Inventories Advance, Change P/P for May 2021 (U.S. Census Bureau) at 1.10%
US Rates Intraday | Sources: ϕpost, Refinitiv dataUS Curve Spreads Intraday | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • 3-month USD Libor 5 years forward up 0.1 bp
  • US Treasury 1-year zero-coupon rate 5 years forward up 1.2 bp, now at 2.0715%
  • 1-Year Treasury rates are now expected to increase by 196.9 bp over the next 5 years
  • The market currently expects the 3-month USD OIS rate to rise by 20.7 bp over the next 18 months (equivalent to 0.8 rate hike)and 107.3 bp over the next 3 years (equivalent to 4.3 rate hikes)
Rate hikes over the next 3 years | Sources: ϕpost, Refinitiv dataUS Fed Funds Futures Implied Yields | Sources: ϕpost, Refinitiv data3m Eurodollar Futures Implied Yield | Sources: ϕpost, Refinitiv data Expected changes in 1Y Treasury Rate | Sources: ϕpost, Refinitiv data

US INFLATION

  • TIPS 1Y breakeven inflation at 3.18% (down -5.2bp); 2Y at 2.72% (down -4.1bp); 5Y at 2.46% (down -3.9bp); 10Y at 2.31% (down -3.2bp); 30Y at 2.27% (down -2.3bp)
  • 6-month spot US CPI swap down -10.9 bp to 3.926%, with a flattening of the forward curve
TIPS Breakevens | Sources: ϕpost, Refinitiv dataShort-term inflation swap | Sources: ϕpost, Refinitiv dataShort-term Inflation swap curve | Sources: ϕpost, Refinitiv data

RATES VOLATILITY & LIQUIDITY

  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) unchanged at 13.6%
  • 3-Month LIBOR-OIS spread down -1.6 bp at 6.3 bp (12-months range: 4.5-26.2 bp)
US Short-term rates volatility | Sources: ϕpost, Refinitiv data3M USD Libor-OIS spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.568% (up 0.2 bp); the German 1Y-10Y curve is 0.7 bp flatter at 45.0bp (YTD change: +29.9 bp)
  • Japan 5Y: -0.098% (down 0.0 bp); the Japanese 1Y-10Y curve is 0.2 bp flatter at 16.7bp (YTD change: +2.9 bp)
  • China 5Y: 2.933% (down -0.6 bp); the Chinese 1Y-10Y curve is 5.2 bp steeper at 69.8bp (YTD change: +23.4 bp)
  • Switzerland 5Y: -0.537% (down -3.3 bp); the Swiss 1Y-10Y curve is 0.4 bp steeper at 60.3bp (YTD change: +31.4 bp)
Sovereign Rates Differentials | Sources: ϕpost, Refinitiv dataExpected Hikes | Sources: ϕpost, Refinitiv data