Rates Rise At The Front End Of The Yield Curve, With The Market Expecting The Fed To React To Higher Inflation

The inverted inflation curve steepened (the front end rose and the long end fell), with the current spike in energy prices adding up to longer-term and stickier concerns like rising wages and rent equivalents

Published ET

Fed rate hikes priced into the 3m USD OIS forward curve | Sources: ϕpost, Refinitiv data

Fed rate hikes priced into the 3m USD OIS forward curve | Sources: ϕpost, Refinitiv data

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  • 3-Month USD LIBOR +0.50bp today, now at 0.1268%; 3-Month SOFR OIS unchanged at 0.0520%
  • The treasury yield curve flattened, with the 1s10s spread tightening -4.3 bp, now at 147.8 bp (YTD change: +67.3bp)
  • 1Y: 0.0940% (up 0.3 bp)
  • 2Y: 0.3419% (up 2.2 bp)
  • 5Y: 1.0710% (up 1.5 bp)
  • 7Y: 1.3822% (down 1.2 bp)
  • 10Y: 1.5716% (down 4.0 bp)
  • 30Y: 2.0897% (down 7.6 bp)
  • US treasury curve spreads: 2s5s at 72.9bp (down -0.7bp), 5s10s at 50.1bp (down -5.5bp), 10s30s at 51.8bp (down -3.6bp)
  • Treasuries butterfly spreads: 1s5s10s at -48.1bp (down -6.4bp), 5s10s30s at 0.7bp (up 1.2bp)
  • US 5-Year TIPS Real Yield: +2.3 bp at -1.6510%; 10-Year TIPS Real Yield: -2.2 bp at -0.9170%; 30-Year TIPS Real Yield: -4.4 bp at -0.2490%


  • NFIB, Index of Small Business Optimism for Sep 2021 (NFIB, United States) at 99.10 (vs 100.10 prior)
  • Chain Store Sales, Johnson Redbook Index, yoy% index, Change Y/Y for W 09 Oct (Redbook Research) at 14.80 % (vs 16.60 % prior)
  • JOLTS Job Openings for Aug 2021 (BLS, U.S Dep. Of Lab) at 10.44 Mln (vs 10.93 Mln prior), below consensus estimate of 10.93 Mln


  • Mediocre results with end-user demand dropping to 63.1% (vs 75.6% in September and 68.0% average)
  • High Yield at 0.635%, 0.2bp through the 0.0637% WI at the bid deadline (and 0.447% at the prior auction)
  • Direct bids at 18.9% (vs 19.0% prior and 16.6% average)
  • Indirect bids at 44.2% (vs 56.7% prior and 51.4% average)
  • Bid-to-cover at 2.36 (vs 2.45 prior and 2.44 average)

US$ 38 BN 10Y NOTE AUCTION (91282CCS8)

  • Strong stats, with end-user demand at 88.8%, the second highest level of all time (vs. 79.6% average)
  • High Yield at 1.584%, 0.6bp stop-through vs 1.590% WI at bid deadline (September auction priced at 1.338%)
  • Direct bids at 17.7% (vs 16.6% prior and 16.4% average)
  • Indirect bids at 71.1% (vs 71.1% prior and 63.3% average)
  • Bid-to-cover at 2.58 (vs 2.59 prior and 2.45 average)
US Treasury Yields Intraday | Sources: ϕpost, Refinitiv dataUS Treasury Curve Spreads | Sources: ϕpost, Refinitiv data


  • 3-month Eurodollar future (EDU2) expected hike of 26.2 bp by the end of 2022
  • The 3-month USD OIS forward curve prices in 117.9 bp over the next 3 years (equivalent to 4.72 rate hikes)
  • The 3-month Eurodollar zero curve prices in 142.1 bp over the next 3 years (equivalent to 5.69 rate hikes)
  • 1-year US Treasury rate 5 years forward down 6.1 bp, now at 2.1107%, meaning that the 1-year Treasury rate is now expected to increase by 199.4 bp over the next 5 years (equivalent to 8.0 rate hikes)
Expected Hikes Derived From the 3m USD OIS Forward Curve | Sources: ϕpost, Refinitiv dataExpected Hikes Derived From the 1Y Treasury Forward Curve | Sources: ϕpost, Refinitiv data


  • TIPS 1Y breakeven inflation at 3.35% (up 2.4bp); 2Y at 3.02% (up 0.8bp); 5Y at 2.76% (down -0.9bp); 10Y at 2.47% (down -1.8bp); 30Y at 2.35% (down -3.2bp)
  • 6-month spot US CPI swap down -0.2 bp to 3.610%, with an inverted steepening of the forward curve
  • US Real Rates: 5Y at -1.6510%, +2.3 bp today; 10Y at -0.9170%, -2.2 bp today; 30Y at -0.2490%, -4.4 bp today
US TIPS Inflation Breakeven Curve | Sources: ϕpost, Refinitiv dataUS TIPS Real Yields | Sources: ϕpost, Refinitiv data


  • USD swap rate implied volatility (USD 1 Month by 1 Year ATM Swaption) up 3.1% at 19.3%
  • 3-Month LIBOR-OIS spread up 1.8 bp at 7.5 bp (12-months range: 3.7-22.0 bp)
US Rates Volatility | Sources: ϕpost, Refinitiv data3m USD LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data


  • Germany 5Y: -0.469% (up 3.0 bp); the German 1Y-10Y curve is 2.6 bp steeper at 58.4bp (YTD change: +42.8 bp)
  • Japan 5Y: -0.078% (unchanged 0.0 bp); the Japanese 1Y-10Y curve is 0.2 bp flatter at 21.1bp (YTD change: +6.2 bp)
  • China 5Y: 2.785% (up 0.4 bp); the Chinese 1Y-10Y curve is 0.9 bp steeper at 66.6bp (YTD change: +20.2 bp)
  • Switzerland 5Y: -0.460% (down -0.1 bp); the Swiss 1Y-10Y curve is 3.4 bp steeper at 67.0bp (YTD change: +41.6 bp)
Changes In Global Rates Hikes Expectations | Sources: ϕpost, Refinitiv dataChanges In Global Inflation Expectations | Sources: ϕpost, Refinitiv data