Rates

US Rates Broadly Lower, Though Mainly Hit In The Belly

Fixed income markets are currently pricing in 4 rate hikes over the next 3 years, with 80% chance the first one happens before the end of 2022

Published ET

Rate hikes priced into the 3-month USD OIS Forward Curve | Sources: ϕpost, Refinitiv data

Rate hikes priced into the 3-month USD OIS Forward Curve | Sources: ϕpost, Refinitiv data

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QUICK US SUMMARY

  • Yield curve flattening, with the 1s10s Treasury spread tightening -2.6 bp on the day, now at 136.0 bp (YTD change: +55.5)
  • 1Y: 0.0710% (down 0.2 bp)
  • 2Y: 0.2376% (down 1.7 bp)
  • 5Y: 0.8590% (down 3.4 bp)
  • 7Y: 1.1939% (down 3.7 bp)
  • 10Y: 1.4306% (down 2.9 bp)
  • 30Y: 2.0451% (down 2.0 bp)
  • US treasury curve spreads: 2s5s at 62.2bp (down -1.7bp today), 5s10s at 57.1bp (up 0.3bp today), 10s30s at 61.6bp (up 1.0bp today)
  • Treasuries butterfly spreads: 2s5s10s at -5.5bp (up 2.0bp today), 5s10s30s at 4.5bp (up 0.9bp today)

US MACRO RELEASES

  • Average Earnings YY, Change Y/Y for Jun 2021 (BLS, U.S Dep. Of Lab) at 3.60 %, below consensus estimate of 3.70 %
  • Earnings, Average Hourly, Nonfarm payrolls, all employees, total private, Change P/P for Jun 2021 (BLS, U.S Dep. Of Lab) at 0.30 %, below consensus estimate of 0.40 %
  • Employment, Nonfarm payroll, goods-producing, manufacturing, total, Absolute change for Jun 2021 (BLS, U.S Dep. Of Lab) at 15.00 k, below consensus estimate of 28.00 k
  • Employment, Nonfarm payroll, service-producing, government, Absolute change for Jun 2021 (BLS, U.S Dep. Of Lab) at 188.00 k
  • Employment, Nonfarm payroll, total private, Absolute change for Jun 2021 (BLS, U.S Dep. Of Lab) at 662.00 k, above consensus estimate of 600.00 k
  • Employment, Nonfarm payroll, total, Absolute change for Jun 2021 (BLS, U.S Dep. Of Lab) at 850.00 k, above consensus estimate of 700.00 k
  • Hours Worked, Average Per Week, Nonfarm payrolls, all employees, total private for Jun 2021 (BLS, U.S Dep. Of Lab) at 34.70 hrs, below consensus estimate of 34.90 hrs
  • Labor Force Participation rate for Jun 2021 (BLS, U.S Dep. Of Lab) at 61.60%
  • 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 %
  • Manufacturers New Orders, Durable goods total, Change P/P for May 2021 (U.S. Census Bureau) at 2.30 %
  • Manufacturers New Orders, Nondefense capital goods excluding aircraft, Change P/P for May 2021 (U.S. Census Bureau) at 0.10 %
  • Manufacturers New Orders, Total manufacturing excluding transportation, Change P/P for May 2021 (U.S. Census Bureau) at 0.70 %
  • Manufacturers New Orders, Total manufacturing, Change P/P for May 2021 (U.S. Census Bureau) at 1.70 %, above consensus estimate of 1.60 %
  • Trade Balance, Total, Goods and services for May 2021 (U.S. Census Bureau) at -71.20 Bln USD, above consensus estimate of -71.40 Bln USD
  • Unemployment, Rate for Jun 2021 (BLS, U.S Dep. Of Lab) at 5.90 %, above consensus estimate of 5.70 %
  • Unemployment, Rate, Special (U-6) for Jun 2021 (BLS, U.S Dep. Of Lab) at 9.80 %
US Rates Intraday | Sources: ϕpost, Refinitiv dataUS Curve Spreads Intraday | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • 3-month USD Libor 5 years forward down 3.3 bp
  • US Treasury 1-year zero-coupon rate 5 years forward down 4.9 bp, now at 1.9513%
  • 1-Year Treasury rates are now expected to increase by 185.8 bp over the next 5 years
  • The market currently expects the 3-month USD OIS rate to rise by 19.8 bp over the next 18 months (equivalent to 0.8 rate hike) and 103.1 bp over the next 3 years (equivalent to 4.1 rate hikes)
Expected Forward Changes in US 1Y Rate | Sources: ϕpost, Refinitiv dataUS 2-10 Spread Forward | Sources: ϕpost, Refinitiv dataTiming of US rate hikes | Sources: ϕpost, Refinitiv dataFed Funds Futures Implied Yields | Sources: ϕpost, Refinitiv data

US INFLATION

  • TIPS 1Y breakeven inflation at 3.11% (down -7.4bp); 2Y at 2.69% (down -4.3bp); 5Y at 2.50% (down -0.2bp); 10Y at 2.33% (down -0.8bp); 30Y at 2.28% (down -1.1bp)
  • 6-month spot US CPI swap down -6.6 bp to 4.230%, with a steepening of the forward curve
  • Longer-term inflation is staying well anchored around 2.40%
US TIPS Breakevens | Sources: ϕpost, Refinitiv dataUS Short-Term CPI Swap Forward | Sources: ϕpost, Refinitiv data

RATES VOLATILITY & LIQUIDITY

  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) down -1.6% at 14.4%
  • 3-Month LIBOR-OIS spread down -0.8 bp at 6.4 bp (12-months range: 4.5-23.6 bp)
US Short-Term Rates Volatility | Sources: ϕpost, Refinitiv dataUSD 3-month LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.607% (down -1.9 bp); the German 1Y-10Y curve is 3.5 bp flatter at 38.7bp (YTD change: +23.8 bp)
  • Japan 5Y: -0.102% (down -0.5 bp); the Japanese 1Y-10Y curve is 0.0 bp steeper at 14.8bp (YTD change: +1.1 bp)
  • China 5Y: 2.946% (up 0.8 bp); the Chinese 1Y-10Y curve is 0.5 bp flatter at 78.4bp (YTD change: +32.0 bp)
  • Switzerland 5Y: -0.562% (down -2.5 bp); the Swiss 1Y-10Y curve is 9.4 bp flatter at 46.7bp (YTD change: +21.3 bp)
Sovereign Rates Differentials | Sources: ϕpost, Refinitiv dataInternational Rate Hikes Expectations | Sources: ϕpost, Refinitiv data