Rates

US Rates Consolidate At Higher Levels To Close Out A Volatile Week

With the ECB committed to keeping rates low for a very long time, the 3-month EURIBOR forward curve is now negative out to 6 years and implies less than 40bp of hikes over the next 5 years

Published ET

The ECB Brought Down The Path Of Rate Hikes Expectations | Sources: ϕpost, Refinitiv data

The ECB Brought Down The Path Of Rate Hikes Expectations | Sources: ϕpost, Refinitiv data

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QUICK US SUMMARY

  • 3-Month USD LIBOR +0.4bp today, now at 0.1289%
  • The treasury yield curve steepened, with the 1s10s spread widening 0.5 bp, now at 121.0 bp (YTD change: +40.6bp)
  • 1Y: 0.0710% (unchanged)
  • 2Y: 0.2001% (down 0.2 bp)
  • 5Y: 0.7134% (down 0.7 bp)
  • 7Y: 1.0275% (down 0.3 bp)
  • 10Y: 1.2813% (up 0.5 bp)
  • 30Y: 1.9229% (up 1.0 bp)
  • US treasury curve spreads: 2s5s at 51.4bp (down -0.5bp), 5s10s at 56.8bp (up 1.2bp today), 10s30s at 64.2bp (up 0.6bp today)
  • Treasuries butterfly spreads: 2s5s10s at 5.1bp (up 1.6bp today), 5s10s30s at 7.0bp (down -0.2bp)
  • US 5-Year TIPS Real Yield: -7.5 bp at -1.8750%; 10-Year TIPS Real Yield: -2.9 bp at -1.0600%; 30-Year TIPS Real Yield: -4.0 bp at -0.3160%

US Treasury Curve Spreads | Sources: phipost.com, Refinitiv data

US MACRO RELEASES

  • PMI, Composite, Output, Flash for Jul 2021 (Markit Economics) at 59.70
  • PMI, Manufacturing Sector, Total, Flash for Jul 2021 (Markit Economics) at 63.10, above consensus estimate of 62.00
  • PMI, Services Sector, Business Activity, Flash for Jul 2021 (Markit Economics) at 59.80, below consensus estimate of 64.80

WEEKLY CFTC POSITIONING UPDATE SHOWS SOME DURATION SHORT COVERING

Source: Credit Suisse

US Rates Intraday | Sources: ϕpost, Refinitiv dataUS Treasury Curve Spreads | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • US Treasury 1-year zero-coupon rate 5 years forward up 0.2 bp, now at 1.7139%
  • 1-Year Treasury rates are now expected to increase by 163.5 bp over the next 5 years
  • 3-month Eurodollar futures expected hike of 16.5 bp by the end of 2022 (meaning the market prices 66.0% chance of a 25bp hike by end of 2022)
  • The 3-month USD OIS forward curve prices in 15.1 bp of rate hikes over the next 18 months (equivalent to 0.60 rate hike) and 68.5 bp over the next 3 years (equivalent to 2.74 rate hikes)
Expected changes in US 1Y Rate | Sources: ϕpost, Refinitiv data3M LIBOR Forward Rates | Sources: ϕpost, Refinitiv data

US INFLATION

  • TIPS 1Y breakeven inflation at 3.30% (up 4.0bp); 2Y at 2.77% (up 6.3bp); 5Y at 2.56% (up 6.6bp); 10Y at 2.34% (up 5.8bp); 30Y at 2.26% (up 5.1bp)
  • 6-month spot US CPI swap down -1.4 bp to 3.899%, with a flattening of the forward curve
6-Month CPI Swap Spot & Forward | Sources: ϕpost, Refinitiv dataUS TIPS Real Yields | Sources: ϕpost, Refinitiv data

SHORT-TERM RATES IMPLIED VOLATILITY & LIQUIDITY

  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 0.1% at 15.9%
  • 3-Month LIBOR-OIS spread up 0.4 bp at 4.9 bp (12-months range: 3.7-23.6 bp)
US STIR Volatility | Sources: ϕpost, Refinitiv data 3-month USD LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.700% (up 0.1 bp); the German 1Y-10Y curve is 0.8 bp steeper at 21.9bp (YTD change: +7.2 bp)
  • Japan was closed today with the start of the Olympics
  • China 5Y: 2.729% (down -2.1 bp); the Chinese 1Y-10Y curve is 0.5 bp steeper at 96.2bp (YTD change: +49.8 bp)
  • Switzerland 5Y: -0.676% (up 0.1 bp); the Swiss 1Y-10Y curve is 4.7 bp steeper at 38.7bp (YTD change: +12.3 bp)
5-Year Sovereign Rates Differentials | Sources: ϕpost, Refinitiv dataExpected Hikes In Major Countries | Sources: ϕpost, Refinitiv data