Rates

US Macro Data Disappoints, Rates Curve Flattens Further

Medium- to long-term inflation expectations have stabilized recently in the 2.30-2.60% range, noticeably higher than the Fed target, but fell slightly today

Published ET

Fed Hikes Expectations Fell Over The Next 3 Years | Sources: ϕpost, Refinitiv data

Fed Hikes Expectations Fell Over The Next 3 Years | Sources: ϕpost, Refinitiv data

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QUICK US SUMMARY

  • 3-Month USD LIBOR unchanged at 0.1199%
  • The treasury yield curve flattened, with the 1s10s spread tightening -3.0 bp, now at 121.2 bp (YTD change: +40.8bp)
  • 1Y: 0.0680% (unchanged)
  • 2Y: 0.2033% (down 1.6 bp)
  • 5Y: 0.7675% (down 3.4 bp)
  • 7Y: 1.0646% (down 3.3 bp)
  • 10Y: 1.2802% (down 3.0 bp)
  • 30Y: 1.8950% (down 2.6 bp)
  • US treasury curve spreads: 2s5s at 56.4bp (down -1.8bp), 5s10s at 51.2bp (up 0.2bp today), 10s30s at 61.6bp (up 0.4bp today)
  • Treasuries butterfly spreads: 2s5s10s at -5.7bp (up 2.0bp today), 5s10s30s at 10.1bp (up 0.3bp)
  • US 5-Year TIPS Real Yield: -1.1 bp at -1.8210%; 10-Year TIPS Real Yield: -1.0 bp at -1.0860%; 30-Year TIPS Real Yield: -0.4 bp at -0.3450%

US MACRO RELEASES

  • Dallas Fed, General Business Activity for Aug 2021 (Fed Reserve, Dallas) at 9.00 (vs 27.30 prior)
  • Pending Home Sales, United States for Jul 2021 (NAR, United States) at 110.70 (vs 112.80 prior)
  • Pending Home Sales, United States, Change P/P for Jul 2021 (NAR, United States) at -1.80 % (vs -1.90 % prior), below consensus estimate of 0.40 %
US Treasury Yields 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 down 2.9 bp, now at 1.7050%
  • 1-Year Treasury rates are now expected to increase by 163.0 bp over the next 5 years
  • 3-month Eurodollar futures expected hike of 14.7 bp by the end of 2022 (meaning the market prices 58.8% chance of a 25bp hike by end of 2022)
  • The 3-month USD OIS forward curve prices in 18.8 bp of rate hikes over the next 18 months (equivalent to 0.75 rate hike) and 81.0 bp over the next 3 years (equivalent to 3.24 rate hikes)
1Y US Treasury Rate 5 Years Forward | Sources: ϕpost, Refinitiv dataFed Hikes Expectations Over Next 5 years | Sources: ϕpost, Refinitiv data

US INFLATION & REAL RATES

  • TIPS 1Y breakeven inflation at 3.05% (up 0.6bp); 2Y at 2.82% (up 0.6bp); 5Y at 2.65% (down -2.1bp); 10Y at 2.35% (down -2.0bp); 30Y at 2.25% (down -2.2bp)

Short-Term Inflation Swap Forward | Sources: phipost.com, Refinitiv data

  • US Real Rates: 5Y at -1.8210%, -1.1 bp today; 10Y at -1.0860%, -1.0 bp today; 30Y at -0.3450%, -0.4 bp today
US TIPS Real Yields | Sources: ϕpost, Refinitiv dataUS TIPS Breakeven Inflation Curve | Sources: ϕpost, Refinitiv data

RATES VOLATILITY & LIQUIDITY

  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 0.3% at 14.8%
  • 3-Month LIBOR-OIS spread down -1.2 bp at 5.3 bp (12-months range: 3.7-22.0 bp)
US Rates Volatility | Sources: ϕpost, Refinitiv data3-Month USD LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.721% (down -1.1 bp); the German 1Y-10Y curve is 1.3 bp flatter at 22.5bp (YTD change: +7.6 bp)
  • Japan 5Y: -0.115% (down -0.4 bp); the Japanese 1Y-10Y curve is 0.7 bp flatter at 15.5bp (YTD change: +0.9 bp)
  • China 5Y: 2.678% (down -1.9 bp); the Chinese 1Y-10Y curve is 3.1 bp flatter at 60.1bp (YTD change: +13.7 bp)
  • Switzerland 5Y: -0.644% (up 0.1 bp); the Swiss 1Y-10Y curve is 1.8 bp steeper at 47.0bp (YTD change: +16.6 bp)
Changes In Global Rate Hikes Expectations | Sources: ϕpost, Refinitiv dataChanges In Global Inflation Expectations | Sources: ϕpost, Refinitiv data