US Rates Down, Duration Bought To Start The Week

Inflation forward curve flattens as short-term expectations fall, while the long end stays well anchored

Published Jun 28, 2021 4:53 PM ET

Forward rates changes currently priced in by the market | Sources: ϕpost, Refinitiv data

Yield curve flattening, with the 1s10s Treasury spread tightening -3.7 bp on the day, now at 140.1 bp (YTD change: +59.6)
1Y: 0.0810% (down 0.5 bp)
2Y: 0.2563% (down 1.2 bp)
5Y: 0.8990% (down 2.6 bp)
7Y: 1.2500% (down 3.3 bp)
10Y: 1.4816% (down 4.3 bp)
30Y: 2.1007% (down 5.0 bp)
US treasury curve spreads: 2s5s at 64.3bp (down -1.4bp today), 5s10s at 58.3bp (down -1.7bp today), 10s30s at 61.9bp (down -0.8bp today)
Treasuries butterfly spreads: 2s5s10s at -6.4bp (down -0.3bp today), 5s10s30s at 3.1bp (up 1.3bp today)

Dallas Fed, General Business Activity for Jun 2021 (Federal Reserve, Dallas) at 31.10, below consensus of 32.5
Fed's Barkin (on the hawkish side, but not a voter in 2022) said a rate hike is possible as soon as 2022 "if the numbers hit"
Solid auctions of 13- and 26-week treasury bills (total issuance of US$ 126.455bn): 13W $64,937M accepted (vs prior: $59,059M) and 26W $61,518M (prior: $55,951M)

3-month USD Libor 5 years forward down 1.4 bp
US Treasury 1-year zero-coupon rate 5 years forward down 5.2 bp, now at 2.0469%
1-Year Treasury rates are now expected to increase by 194.8 bp over the next 5 years
The market currently expects the 3-month USD OIS rate to rise by 19.7 bp over the next 18 months (equivalent to 0.8 rate hike) and 105.8 bp over the next 3 years (equivalent to 4.2 rate hikes)

TIPS 1Y breakeven inflation at 3.16% (down -0.3bp); 2Y at 2.71% (down -1.5bp); 5Y at 2.46% (down -2.7bp); 10Y at 2.32% (down -2.5bp); 30Y at 2.30% (down -1.9bp)
6-month spot US CPI swap down -6.8 bp to 3.865%, with a flattening of the forward curve

USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 0.2% at 14.6%
3-Month LIBOR-OIS spread up 0.6 bp at 7.8 bp (12-months range: 4.5-26.2 bp)

Germany 5Y: -0.569% (down -1.9 bp); the German 1Y-10Y curve is 3.2 bp flatter at 44.7bp (YTD change: +29.5 bp)
Japan 5Y: -0.087% (up 0.5 bp); the Japanese 1Y-10Y curve is 0.7 bp steeper at 17.4bp (YTD change: +3.1 bp)
China 5Y: 2.941% (up 1.0 bp); the Chinese 1Y-10Y curve is 0.5 bp flatter at 72.3bp (YTD change: +25.9 bp)
Switzerland 5Y: -0.541% (down -0.6 bp); the Swiss 1Y-10Y curve is 7.7 bp flatter at 56.6bp (YTD change: +30.2 bp)