Rates

US Rates Rebound, Markets Still Recalibrating Growth Expectations

US 10-Year treasury rates touched 1.1290% before equity markets opened, rebounded to hit 1.2218% at the close; analysts do not expect the short-term low to be in yet, with 1.0750% in view

Published ET

The timing and magnitude of expected Fed hikes have changed dramatically over the past months | Sources: ϕpost, Refinitiv data

The timing and magnitude of expected Fed hikes have changed dramatically over the past months | Sources: ϕpost, Refinitiv data

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QUICK US SUMMARY

  • Yield curve steepening, with the 1s10s Treasury spread widening 2.3 bp, now at 114.8 bp (YTD change: +34.3)
  • 1Y: 0.0740% (unchanged)
  • 2Y: 0.2016% (down 1.6 bp)
  • 5Y: 0.6850% (down 2.3 bp)
  • 7Y: 0.9793% (down 0.2 bp)
  • 10Y: 1.2218% (up 2.3 bp)
  • 30Y: 1.8771% (up 4.8 bp)
  • US treasury curve spreads: 2s5s at 48.4bp (down -0.6bp), 5s10s at 53.7bp (up 4.7bp today), 10s30s at 65.5bp (up 2.5bp today)
  • Treasuries butterfly spreads: 2s5s10s at 5.0bp (up 5.4bp today), 5s10s30s at 11.3bp (down -3.1bp)
  • US 5-Year TIPS Real Yield: -1.6 bp at -1.7740%; 10-Year TIPS Real Yield: +1.8 bp at -1.0500%; 30-Year TIPS Real Yield: +3.6 bp at -0.2890%

US MACRO RELEASES

  • Building Permits for Jun 2021 (U.S. Census Bureau) at 1.60 Mln, below consensus estimate of 1.70 Mln
  • Building Permits, Change P/P for Jun 2021 (U.S. Census Bureau) at -5.10 %
  • Chain Store Sales, Johnson Redbook Index, yoy% index, Change Y/Y for W 17 Jul (Redbook Research) at 15.00 %
  • Housing Starts for Jun 2021 (U.S. Census Bureau) at 1.64 Mln, above consensus estimate of 1.59 Mln
  • Housing Starts, Change P/P for Jun 2021 (U.S. Census Bureau) at 6.30 %
US Treasury Curve Spreads | Sources: ϕpost, Refinitiv dataUS TIPS Real Yields | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • US Treasury 1-year zero-coupon rate 5 years forward up 3.8 bp, now at 1.6315%
  • 1-Year Treasury rates are now expected to increase by 155.3 bp over the next 5 years (equivalent to 6 x 25bp hikes)
  • The market currently expects the 3-month USD OIS rate to rise by 14.4 bp over the next 18 months (equivalent to 0.58 rate hike) and 70.1 bp over the next 3 years (equivalent to 2.8 rate hikes)
Expected Hikes From 1-year treasury rate forward curve | Sources: ϕpost, Refinitiv data Expected Hiked Derived From USD OIS Forward Curve | Sources: ϕpost, Refinitiv data

US INFLATION & REAL RATES

  • TIPS 1Y breakeven inflation at 3.14% (up 4.2bp); 2Y at 2.63% (down -2.6bp); 5Y at 2.43% (down -0.8bp); 10Y at 2.25% (up 0.4bp); 30Y at 2.18% (up 1.2bp)
  • 6-month spot US CPI swap unchanged at 3.80%, with a steepening of the forward curve
US TIPS Breakevens | Sources: ϕpost, Refinitiv data6-Month CPI Swap Forward Curve | Sources: ϕpost, Refinitiv data

RATES VOLATILITY & LIQUIDITY

  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 0.2% at 16.8%
  • 3-Month LIBOR-OIS spread down -1.1 bp at 5.8 bp (12-months range: 3.7-23.6 bp)
STIR Volatility | Sources: ϕpost, Refinitiv data3-month USD LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.692% (down -3.4 bp); the German 1Y-10Y curve is 0.2 bp steeper at 22.0bp (YTD change: +7.2 bp)
  • Japan 5Y: -0.131% (down -0.6 bp); the Japanese 1Y-10Y curve is 0.0 bp flatter at 14.5bp (YTD change: +0.2 bp)
  • China 5Y: 2.761% (down -2.5 bp); the Chinese 1Y-10Y curve is 2.5 bp steeper at 98.4bp (YTD change: +52.0 bp)
  • Switzerland 5Y: -0.670% (down -1.3 bp); the Swiss 1Y-10Y curve is 3.1 bp flatter at 39.4bp (YTD change: +12.9 bp)
5-Year Nominal Rates Differentials | Sources: ϕpost, Refinitiv dataHikes Expectations In US, JP, DE, CN | Sources: ϕpost, Refinitiv data