Rates

US Rates Sharply Lower Into The Weekend, With The Market Dismissing Strong NFP And Consumer Credit Data

Payrolls are now about 4.2m jobs (2.8%) below pre-COVID levels in February 2020, with a pickup across leisure & hospitality, temps and other services, but participation remains low and it's still unclear how many workers have left the labor market permanently

Published ET

Changes In Fed Rate Hikes Priced Into The 3-Month USD OIS Forward Curve | Sources: ϕpost, Refinitiv data

Changes In Fed Rate Hikes Priced Into The 3-Month USD OIS Forward Curve | Sources: ϕpost, Refinitiv data

Twitter iconFacebook iconLinkedIn iconemail iconWhatsApp icon

QUICK US SUMMARY

  • 3-Month USD LIBOR -0.16bp today, now at 0.1444%; 3-Month OIS -0.1bp at 0.0760%
  • The treasury yield curve flattened, with the 1s10s spread tightening -7.0 bp, now at 138.0 bp (YTD change: +57.5bp)
  • 1Y: 0.1500% (down 0.5 bp)
  • 2Y: 0.4264% (down 2.2 bp)
  • 5Y: 1.1137% (down 5.8 bp)
  • 7Y: 1.3844% (down 6.6 bp)
  • 10Y: 1.5297% (down 7.5 bp)
  • 30Y: 1.9652% (down 7.8 bp)
  • US treasury curve spreads: 2s5s at 65.1bp (down -3.7bp), 5s10s at 39.3bp (down -2.3bp), 10s30s at 43.6bp (unchanged)
  • Treasuries butterfly spreads: 1s5s10s at -52.3bp (up 3.6bp today), 5s10s30s at 3.3bp (up 1.9bp)
  • US 5-Year TIPS Real Yield: -5.1 bp at -1.8290%; 10-Year TIPS Real Yield: -5.5 bp at -1.0930%; 30-Year TIPS Real Yield: -5.8 bp at -0.4310%

US MACRO RELEASES

  • Average Earnings YY, Change Y/Y for Oct 2021 (BLS, U.S Dep. Of Lab) at 4.90 % (vs 4.60 % prior), in line with consensus
  • Earnings, Average Hourly, Nonfarm payrolls, all employees, total private, Change P/P for Oct 2021 (BLS, U.S Dep. Of Lab) at 0.40 % (vs 0.60 % prior), in line with consensus
  • Hours Worked, Average Per Week, Nonfarm payrolls, all employees, total private for Oct 2021 (BLS, U.S Dep. Of Lab) at 34.70 hrs (vs 34.80 hrs prior), below consensus estimate of 34.80 hrs
  • Employment, Nonfarm payroll, total private, Absolute change for Oct 2021 (BLS, U.S Dep. Of Lab) at 604.00 k (vs 317.00 k prior), above consensus estimate of 400.00 k
  • Employment, Nonfarm payroll, total, Absolute change for Oct 2021 (BLS, U.S Dep. Of Lab) at 531.00 k (vs 194.00 k prior), above consensus estimate of 450.00 k
  • Employment, Nonfarm payroll, goods-producing, manufacturing, total, Absolute change for Oct 2021 (BLS, U.S Dep. Of Lab) at 60.00 k (vs 26.00 k prior), above consensus estimate of 27.00 k
  • Employment, Nonfarm payroll, service-producing, government, Absolute change for Oct 2021 (BLS, U.S Dep. Of Lab) at -73.00 k (vs -123.00 k prior)
  • Unemployment, Rate for Oct 2021 (BLS, U.S Dep. Of Lab) at 4.60 % (vs 4.80 % prior), below consensus estimate of 4.70 %
  • Unemployment, Rate, Special (U-6) for Oct 2021 (BLS, U.S Dep. Of Lab) at 8.30 % (vs 8.50 % prior)
  • Civilian participation, total for Oct 2021 (BLS, U.S Dep. Of Lab) at 61.60 % (vs 61.60 % prior)
  • Consumer credit, total, Absolute change for Sep 2021 (FED, U.S.) at 29.91 Bln USD (vs 14.38 Bln USD prior), above consensus estimate of 15.90 Bln USD
  • Manheim Index (US used car pricing) in October '21 at new all-time high, +9.2% m/m, +38% y/y. A reversal from month on month declines in June to August.

US WEEK AHEAD

  • Most important releases will be the latest CPI data on Wednesday and the JOLTS job openings + University of Michigan survey on Friday
  • A few coupon-bearing treasury auctions coming up: $56B 3Y (91282CDH1) on Monday at 1pm, 10Y(91282CDJ7) on Tuesday, 30Y (912810TB4) on Wednesday
  • Fed speakers: Powell and Evans on Monday, Powell and Daly on Tuesday

US Macro Releases in the week ahead | Sources: phipost.com, Refinitiv data

US 5Y & 10Y Treasury Yields Intraday | Sources: ϕpost, Refinitiv dataUS Treasury Curve Spreads Intraday | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • 3-month Eurodollar future (EDU2) expected hike of 39.2 bp by the end of 2022 (equivalent to 1.6 hikes by end of 2022), down -3.8 bp today
  • The 3-month USD OIS forward curve prices in 119.8 bp over the next 3 years (equivalent to 4.79 rate hikes)
  • The 3-month Eurodollar zero curve prices in 137.3 bp over the next 3 years (equivalent to 5.49 rate hikes), indicating a tightening of the basis with 3m x 3Y USD OIS to about 18bp
  • 1-year US Treasury rate 5 years forward down 9.9 bp, now at 1.9053%, meaning that the 1-year Treasury rate is now expected to increase by 175.5 bp over the next 5 years (equivalent to 7.0 rate hikes)
Eurodollar Futures Implied Yields | Sources: ϕpost, Refinitiv dataImplied Fed Hikes Priced Into The 1Y US Treasury Forward Rate Curve | Sources: ϕpost, Refinitiv data

US INFLATION & REAL RATES

  • TIPS 1Y breakeven inflation at 4.15% (up 8.3bp); 2Y at 3.35% (up 0.2bp); 5Y at 2.94% (down -1.4bp); 10Y at 2.52% (down -2.0bp); 30Y at 2.33% (down -2.0bp)
  • 6-month spot US CPI swap up 0.4 bp to 3.589%, with a steepening of the forward curve
  • US Real Rates: 5Y at -1.8290%, -5.1 bp today; 10Y at -1.0930%, -5.5 bp today; 30Y at -0.4310%, -5.8 bp today
US CPI 6-Month Swap Spot & 5Y Forward | 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) up 1.3% at 40.0%
  • 3-Month LIBOR-OIS spread up 0.6 bp at 6.8 bp (12-months range: 2.6-17.4 bp)
US rates Volatility | Sources: ϕpost, Refinitiv data3-Month Spot USD LIBOR-OIS Spread | Sources: ϕpost, Refinitiv data

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.586% (down -2.1 bp); the German 1Y-10Y curve is 0.5 bp flatter at 41.6bp (YTD change: +26.7 bp)
  • Japan 5Y: -0.087% (down -1.5 bp); the Japanese 1Y-10Y curve is 1.0 bp flatter at 16.0bp (YTD change: +2.3 bp)
  • China 5Y: 2.723% (down -4.5 bp); the Chinese 1Y-10Y curve is 1.1 bp flatter at 71.5bp (YTD change: +25.1 bp)
  • Switzerland 5Y: -0.463% (down -2.6 bp); the Swiss 1Y-10Y curve is 4.9 bp flatter at 56.5bp (YTD change: +27.9 bp)
Changes in Global Rate Hikes Expectations | Sources: ϕpost, Refinitiv dataUS and German 1Y CPI Swap 1Y Forward | Sources: ϕpost, Refinitiv data