Rates

Good Jobs Report Lifts Rates, Puts Fed On Track For Q4 Tapering Announcement

As outlined in our daily note yesterday, the positive NFP data brought the Fed's dot plot back on the table, with the implied path of hikes now aligned in the next 2 years with market expectations after the June FOMC

Published ET

Implied Fed Hikes Over The Next 5 Years | Sources: ϕpost, Refinitiv data

Implied Fed Hikes Over The Next 5 Years | Sources: ϕpost, Refinitiv data

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QUICK US SUMMARY

  • Short-term interest rates forward curves now price in a 100% probability of a Fed rate hike by the end of 1Q 2023, with Eurodollar futures seeing 3 rate hikes in by the end of 2023
  • 3-Month USD LIBOR up +0.3bp today, now at 0.1284%
  • The treasury yield curve steepened, with the 1s10s spread widening 7.7 bp, now at 123.4 bp (YTD change: +43.0bp)
  • 1Y: 0.0710% (up 0.3 bp)
  • 2Y: 0.2122% (up 1.0 bp)
  • 5Y: 0.7741% (up 4.8 bp)
  • 7Y: 1.0804% (up 6.4 bp)
  • 10Y: 1.3053% (up 8.0 bp)
  • 30Y: 1.9526% (up 8.9 bp)
  • US treasury curve spreads: 2s5s at 56.2bp (up 3.8bp today), 5s10s at 53.1bp (up 3.2bp today), 10s30s at 64.8bp (up 0.9bp today)
  • Treasuries butterfly spreads: 2s5s10s at -3.4bp (down -0.6bp), 5s10s30s at 11.3bp (down -2.3bp)
  • US 5-Year TIPS Real Yield: +3.0 bp at -1.8130%; 10-Year TIPS Real Yield: +4.8 bp at -1.0550%; 30-Year TIPS Real Yield: +4.7 bp at -0.2900%

WEEKLY CFTC SPEC POSITIONING

  • Both specs and leveraged funds increased their net short duration, with the former group focusing on 5Y and 10Y treasury futures, and the latter on Eurodollar futures

Source: Credit Suisse

US MACRO RELEASES

  • Average Earnings YY, Change Y/Y for Jul 2021 (BLS, U.S Dep. Of Lab) at 4.00 %, above consensus estimate of 3.80 %
  • Consumer credit, total, Absolute change for Jun 2021 (FED, U.S.) at 37.69 Bln USD, above consensus estimate of 22.50 Bln USD
  • Earnings, Average Hourly, Nonfarm payrolls, all employees, total private, Change P/P for Jul 2021 (BLS, U.S Dep. Of Lab) at 0.40 %, above consensus estimate of 0.30 %
  • Employment, Nonfarm payroll, goods-producing, manufacturing, total, Absolute change for Jul 2021 (BLS, U.S Dep. Of Lab) at 27.00 k, above consensus estimate of 25.00 k
  • Employment, Nonfarm payroll, service-producing, government, Absolute change for Jul 2021 (BLS, U.S Dep. Of Lab) at 240.00 k
  • Employment, Nonfarm payroll, total private, Absolute change for Jul 2021 (BLS, U.S Dep. Of Lab) at 703.00 k, above consensus estimate of 700.00 k
  • Employment, Nonfarm payroll, total, Absolute change for Jul 2021 (BLS, U.S Dep. Of Lab) at 943.00 k, above consensus estimate of 870.00 k
  • Hours Worked, Average Per Week, Nonfarm payrolls, all employees, total private for Jul 2021 (BLS, U.S Dep. Of Lab) at 34.80 hrs, above consensus estimate of 34.70 hrs
  • Labor Force Partic for Jul 2021 (BLS, U.S Dep. Of Lab) at 61.70 %
  • Unemployment, Rate for Jul 2021 (BLS, U.S Dep. Of Lab) at 5.40 %, below consensus estimate of 5.70 %
  • Unemployment, Rate, Special (U-6) for Jul 2021 (BLS, U.S Dep. Of Lab) at 9.20 %
  • Wholesale Inventories, Change P/P for Jun 2021 (U.S. Census Bureau) at 1.10 %, above consensus estimate of 0.80 %
  • Wholesale Trade, Change P/P for Jun 2021 (U.S. Census Bureau) at 2.00 %
US Treasury Rates Intraday | Sources: ϕpost, Refinitiv dataUS Treasury Curve Spreads Intraday | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • US Treasury 1-year zero-coupon rate 5 years forward up 9.2 bp, now at 1.7339%
  • 1-Year Treasury rates are now expected to increase by 165.4 bp over the next 5 years
  • 3-month Eurodollar futures expected hike of 16.8 bp by the end of 2022 (meaning the market prices 67.2% chance of a 25bp hike by end of 2022), and 3 hikes by end of 2023
  • The 3-month USD OIS forward curve prices in 18.7 bp of rate hikes over the next 18 months (equivalent to 0.75 rate hike) and 81.9 bp over the next 3 years (equivalent to 3.28 rate hikes)
Implied Hikes From 3M USD OIS Curve | Sources: ϕpost, Refinitiv data3M Eurodollar Futures Implied Yields | Sources: ϕpost, Refinitiv data

US INFLATION & REAL RATES

  • TIPS 1Y breakeven inflation at 3.08% (down -6.0bp); 2Y at 2.78% (down -3.3bp); 5Y at 2.65% (up 2.5bp); 10Y at 2.36% (up 3.2bp); 30Y at 2.26% (up 4.3bp)
  • US Real Rates: 5Y at -1.8130%, +3.0 bp today; 10Y at -1.0550%, +4.8 bp today; 30Y at -0.2900%, +4.7 bp today
US TIPS Breakeven Inflation Curve | Sources: ϕpost, Refinitiv dataUS TIPS Real Yields | Sources: ϕpost, Refinitiv data

RATES VOLATILITY & LIQUIDITY

  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) down -0.2% at 15.4%
  • 3-Month LIBOR-OIS spread up 0.3 bp at 4.6 bp (12-months range: 3.7-22.0 bp)
US STIR Implied Vols | Sources: ϕpost, Refinitiv data3-Month USD LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.725% (up 3.1 bp); the German 1Y-10Y curve is 4.0 bp steeper at 20.0bp (YTD change: +4.4 bp)
  • Japan 5Y: -0.121% (up 0.5 bp); the Japanese 1Y-10Y curve is 0.9 bp steeper at 16.4bp (YTD change: +1.1 bp)
  • China 5Y: 2.653% (unchanged); the Chinese 1Y-10Y curve is 2.7 bp flatter at 67.0bp (YTD change: +20.6 bp)
  • Switzerland 5Y: -0.693% (up 1.5 bp); the Swiss 1Y-10Y curve is 0.8 bp flatter at 39.2bp (YTD change: +5.8 bp)
DE CH CN JP 5Y Rates Differentials | Sources: ϕpost, Refinitiv dataGlobal Rate Hikes Expectations | Sources: ϕpost, Refinitiv data