Rates Rise From The Belly Out As Reflation Theme Finds New Life Post-NFP

Looking at US TIPS, we're seeing a flattening of the breakeven inflation curve, with the 10Y breakeven rising 2.2bp and 1 year falling 1.5bp

Published Sep 8, 2021 12:46 AM ET

Implied Fed Hikes Derived From US 1Y Treasury Rate Forward Curve | Sources: ϕpost, Refinitiv data

3-Month USD LIBOR +0.1bp today, now at 0.1160%
The treasury yield curve steepened, with the 1s10s spread widening 5.1 bp, now at 131.1 bp (YTD change: +50.6bp)
1Y: 0.0660% (unchanged 0.0 bp)
2Y: 0.2220% (up 1.4 bp)
5Y: 0.8238% (up 3.9 bp)
7Y: 1.1413% (up 4.7 bp)
10Y: 1.3766% (up 5.1 bp)
30Y: 1.9930% (up 4.7 bp)
US treasury curve spreads: 2s5s at 60.3bp (up 2.5bp today), 5s10s at 55.3bp (up 1.2bp today), 10s30s at 61.7bp (down -0.4bp)

Solid results with end-user demand at highest level since 2009, helped by higher rates heading into the auction time (the when issued cheapened to 0.455% at the bid deadline)
High yield at 0.4470% (vs 0.4650% last month), 0.8bp stop-through vs when issued
$141.9 bn in bids, 2.45x cover (vs. 2.54x prior)
Indirect bidders at 56.7%(vs 55.4% prior and 50.9% average)
Direct bidders at 19.0% (vs. 18.4% prior and 16.1% average)

The Conference Board Employment Trends Index (ETI) for Aug 2021 (The Conference Board) at 110.37 (vs 109.80 prior)

US Treasury 1-year zero-coupon rate 5 years forward up 7.5 bp, now at 1.8334%
1-Year Treasury rates are now expected to increase by 175.2 bp over the next 5 years
3-month Eurodollar futures expected hike of 16.2 bp by the end of 2022 (meaning the market prices 64.8% chance of a 25bp hike by end of 2022)
The 3-month USD OIS forward curve prices in 19.8 bp of rate hikes over the next 18 months (equivalent to 0.79 rate hike) and 87.5 bp over the next 3 years (equivalent to 3.50 rate hikes)

TIPS 1Y breakeven inflation at 3.03% (down -1.5bp); 2Y at 2.82% (up 0.3bp); 5Y at 2.64% (up 2.3bp); 10Y at 2.34% (up 2.2bp); 30Y at 2.25% (up 0.8bp)
6-month spot US CPI swap up 2.6 bp to 4.065%, with a steepening of the forward curve

Germany 5Y: -0.629% (up 4.5 bp); the German 1Y-10Y curve is 4.5 bp steeper at 35.4bp (YTD change: +20.2 bp)
Japan 5Y: -0.087% (down -0.3 bp); the Japanese 1Y-10Y curve is 0.5 bp flatter at 14.9bp (YTD change: +0.7 bp)
China 5Y: 2.670% (up 2.2 bp); the Chinese 1Y-10Y curve is 1.6 bp steeper at 60.1bp (YTD change: +13.7 bp)
Switzerland 5Y: -0.570% (up 6.2 bp); the Swiss 1Y-10Y curve is 5.7 bp steeper at 55.4bp (YTD change: +20.0 bp)