US Yield Curve Flattens Slightly, While Rates Volatility Edges Higher

Short-term inflation expectations stays strong as both the 1-year TIPS breakeven and 6-month inflation swap rose today

Published Jun 29, 2021 10:54 PM ET

Spread Between The 1Y treasury spot rate and 1Y treasury rate forwards (derived from zero coupons) | Sources: ϕpost, Refinitiv data

Yield curve flattening, with the 1s10s Treasury spread tightening -0.4 bp on the day, now at 139.9 bp (YTD change: +59.4)
1Y: 0.0760% (down 0.3 bp)
2Y: 0.2524% (down 0.4 bp)
5Y: 0.8910% (down 0.8 bp)
7Y: 1.2430% (down 0.7 bp)
10Y: 1.4748% (down 0.7 bp)
30Y: 2.0878% (down 1.3 bp)
US treasury curve spreads: 2s5s at 63.9bp (down -0.4bp today), 5s10s at 58.4bp (up 0.1bp today), 10s30s at 61.3bp (down -0.6bp today)
Treasuries butterfly spreads: 2s5s10s at -5.9bp (up 0.5bp today), 5s10s30s at 2.8bp (down -0.3bp today)

Chain Store Sales, Johnson Redbook Index, yoy% index, Change Y/Y for W 26 Jun (Redbook Research) at 18.20 %
Conference Board, Consumer confidence for Jun 2021 (The Conference Board) at 127.30, above consensus estimate of 119.00
Dallas Fed, General Business Activity for Jun 2021 (Fed Reserve, Dallas) at 36.20
Dallas Fed, Revenue (Sales for TROS) for Jun 2021 (Fed Reserve, Dallas) at 16.70
House Prices, FHFA, USA (Purchase-Only) for Apr 2021 (OFHEO, United States) at 331.20
House Prices, FHFA, USA (Purchase-Only), Change P/P for Apr 2021 (OFHEO, United States) at 1.80 %
House Prices, FHFA, USA (Purchase-Only), Change Y/Y for Apr 2021 (OFHEO, United States) at 15.70 %
House Prices, S&P Case-Shiller, Composite-20, Change P/P for Apr 2021 (Standard & Poor's) at 1.60 %, below consensus estimate of 1.70 %
House Prices, S&P Case-Shiller, Composite-20, Change P/P, Price Index for Apr 2021 (Standard & Poor's) at 2.10 %
House Prices, S&P Case-Shiller, Composite-20, Change Y/Y, Price Index for Apr 2021 (Standard & Poor's) at 14.90 %, above consensus estimate of 14.50 %

3-month USD Libor 5 years forward down 0.5 bp
US Treasury 1-year zero-coupon rate 5 years forward down 1.0 bp, now at 2.0371%
1-Year Treasury rates are now expected to increase by 194.1 bp over the next 5 years
The market currently expects the 3-month USD OIS rate to rise by 21.2 bp over the next 18 months (equivalent to 0.8 rate hike)and 105.2 bp over the next 3 years (equivalent to 4.2 rate hikes)

TIPS 1Y breakeven inflation at 3.18% (up 1.3bp); 2Y at 2.72% (up 1.3bp); 5Y at 2.47% (up 1.4bp); 10Y at 2.32% (down -0.5bp); 30Y at 2.29% (down -1.2bp)
6-month spot US CPI swap up 57.4 bp to 4.440%, with a steepening of the forward curve

RATES VOLATILITY & LIQUIDITY

USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 0.2% at 14.8%
3-Month LIBOR-OIS spread down -0.6 bp at 7.2 bp (12-months range: 4.5-26.2 bp)

Germany 5Y: -0.561% (up 0.7 bp); the German 1Y-10Y curve is 1.0 bp steeper at 45.8bp (YTD change: +30.5 bp)
Japan 5Y: -0.094% (down -0.5 bp); the Japanese 1Y-10Y curve is unchanged at 18.2bp (YTD change: +3.1 bp)
China 5Y: 2.943% (up 0.2 bp); the Chinese 1Y-10Y curve is 0.5 bp flatter at 71.8bp (YTD change: +25.4 bp)
Switzerland 5Y: -0.540% (up 0.1 bp); the Swiss 1Y-10Y curve is 4.5 bp steeper at 60.1bp (YTD change: +34.7 bp)