Rates

US TIPS Real Yields Up On Strong Retail Sales And Manufacturing Data, While Inflation Breakevens Continue To Rise

Despite a slight weakening at the front end of the curve since the beginning of the week, 3-Month Eurodollar futures still price in at least 2 hikes in 2022 and 3.5 hikes over the following year

Published ET

Fed hikes priced into 3-Month Eurodollar Futures (EDU2 & EDU3) | Sources: ϕpost, Refinitiv data

Fed hikes priced into 3-Month Eurodollar Futures (EDU2 & EDU3) | Sources: ϕpost, Refinitiv data

Twitter iconFacebook iconLinkedIn iconemail iconWhatsApp icon

QUICK US SUMMARY

  • 3-Month USD LIBOR +0.21bp today, now at 0.1579%; 3-Month OIS +0.1bp at 0.0810%
  • The treasury yield curve steepened, with the 1s10s spread widening 2.0 bp, now at 147.5 bp (YTD change: +67.1bp)
  • 1Y: 0.1650% (up 0.3 bp)
  • 2Y: 0.5220% (up 0.2 bp)
  • 5Y: 1.2703% (up 1.5 bp)
  • 7Y: 1.5271% (up 2.5 bp)
  • 10Y: 1.6404% (up 2.2 bp)
  • 30Y: 2.0328% (up 3.6 bp)
  • US treasury curve spreads: 2s5s at 74.9bp (up 1.1bp today), 5s10s at 37.0bp (up 0.6bp today), 10s30s at 39.3bp (up 1.1bp today)
  • Treasuries butterfly spreads: 1s5s10s at -74.5bp (down -0.2bp), 5s10s30s at 2.0bp (up 0.1bp)
  • US 5-Year TIPS Real Yield: +0.4 bp at -1.9270%; 10-Year TIPS Real Yield: +3.2 bp at -1.1150%; 30-Year TIPS Real Yield: +6.9 bp at -0.4070%

US MACRO RELEASES

  • Capacity Utilization, Total index, Change M/M for Oct 2021 (FED, U.S.) at 76.40 % (vs 75.20 % prior), above consensus estimate of 75.80 %
  • Chain Store Sales, Johnson Redbook Index, yoy% index, Change Y/Y for W 13 Nov (Redbook Research) at 14.70 % (vs 15.60 % prior)
  • Export Prices, All commodities, Change P/P, Price Index for Oct 2021 (BLS, U.S Dep. Of Lab) at 1.50 % (vs 0.10 % prior), above consensus estimate of 0.90 %
  • Import Prices, All commodities, Change P/P, Price Index for Oct 2021 (BLS, U.S Dep. Of Lab) at 1.20 % (vs 0.40 % prior), above consensus estimate of 1.00 %
  • NAHB/Wells Fargo Housing Market Index for Nov 2021 (NAHB, United States) at 83.00 (vs 80.00 prior), above consensus estimate of 80.00
  • Net flows total, Current Prices for Sep 2021 (U.S. Dept. Treas.) at -26.80 Bln USD (vs 91.00 Bln USD prior)
  • Net foreign acquisition of long-term securities, Current Prices for Sep 2021 (U.S. Dept. Treas.) at -1.80 Bln USD (vs 60.90 Bln USD prior)
  • Net purchases (net long-term capital inflows), total, Current Prices for Sep 2021 (U.S. Dept. Treas.) at 26.30 Bln USD (vs 79.30 Bln USD prior)
  • Net purchases of U.S. treasury bonds & notes, total net foreign purchases, Current Prices for Sep 2021 (U.S. Dept. Treas.) at 1.40 Bln USD (vs 30.70 Bln USD prior)
  • Overall, Total business inventories, Change P/P for Sep 2021 (U.S. Census Bureau) at 0.70 % (vs 0.60 % prior), in line with consensus
  • Production, Change P/P for Oct 2021 (FED, U.S.) at 1.60 % (vs -1.30 % prior), above consensus estimate of 0.70 %
  • Production, Manufacturing, Total (SIC), Change P/P for Oct 2021 (FED, U.S.) at 1.20 % (vs -0.70 % prior), above consensus estimate of 0.70 %
  • Retail Sales, Total excluding bldg material & motor vehicle & parts & gasoline station & food svc, Change P/P for Oct 2021 (U.S. Census Bureau) at 1.60 % (vs 0.80 % prior), above consensus estimate of 0.90 %
  • Retail Sales, Total excluding motor vehicle dealers and gasoline station, Change P/P for Oct 2021 (U.S. Census Bureau) at 1.40 % (vs 0.70 % prior)
  • Retail Sales, Total including food services, Change P/P for Oct 2021 (U.S. Census Bureau) at 1.70 % (vs 0.70 % prior), above consensus estimate of 1.40 %
  • Retail Sales, Total including food services, excluding motor vehicle and parts, Change P/P for Oct 2021 (U.S. Census Bureau) at 1.70 % (vs 0.80 % prior), above consensus estimate of 1.00 %
US 5Y & 10Y Treasury Rates Intraday | Sources: ϕpost, Refinitiv dataUS Treasury Curve Spreads Intraday | Sources: ϕpost, Refinitiv data

US FORWARD RATES

  • 3-month Eurodollar future (EDU2) expected hike of 50.5 bp by the end of 2022 (equivalent to 2.0 hikes by end of 2022), down -1.7 bp today
  • The 3-month USD OIS forward curve prices in 37.3 bp of rate hikes over the next 12 months (down -0.6 bp today), 86.7 bp of rate hikes over the following year (up 4.9 bp today), and 33.6 bp total rate hikes in years 3 to 5 (down -0.3 bp today)
  • 1-year US Treasury rate 5 years forward up 4.4 bp, now at 2.0944%, meaning that the 1-year Treasury rate is now expected to increase by 190.1 bp over the next 5 years (equivalent to 7.6 rate hikes)
Hikes Priced Into 3-Month USD OIS Forward Rates Over The Next 3 Years | Sources: ϕpost, Refinitiv dataHikes Priced Into 3-Month USD OIS Forward Rates Over The Next 10 Years | Sources: ϕpost, Refinitiv data

US INFLATION & REAL RATES

  • TIPS 1Y breakeven inflation at 5.47% (up 10.7bp); 2Y at 3.95% (up 4.5bp); 5Y at 3.27% (up 1.5bp); 10Y at 2.72% (down -0.9bp); 30Y at 2.46% (down -3.2bp)
  • 6-month spot US CPI swap up 15.5 bp to 4.825%, with a steepening of the forward curve
  • US Real Rates: 5Y at -1.9270%, +0.4 bp today; 10Y at -1.1150%, +3.2 bp today; 30Y at -0.4070%, +6.9 bp today
US TIPS Inflation Breakevens | 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) unchanged at 54.4%
  • 3-Month LIBOR-OIS spread up 0.2 bp at 7.9 bp (12-months range: 2.6-17.4 bp)
US Rates Volatility | Sources: ϕpost, Refinitiv data3-Month USD Spot LIBOR-OIS Spread

KEY INTERNATIONAL RATES

  • Germany 5Y: -0.558% (down -1.0 bp); the German 1Y-10Y curve is 1.4 bp steeper at 52.2bp (YTD change: +36.3 bp)
  • Japan 5Y: -0.076% (up 0.5 bp); the Japanese 1Y-10Y curve is 1.1 bp steeper at 20.1bp (YTD change: +5.3 bp)
  • China 5Y: 2.741% (up 0.1 bp); the Chinese 1Y-10Y curve is 0.7 bp steeper at 74.7bp (YTD change: +28.3 bp)
  • Switzerland 5Y: -0.397% (down -2.2 bp); the Swiss 1Y-10Y curve is 1.5 bp flatter at 61.0bp (YTD change: +30.6 bp)
Changes In Global Inflation Expectations | Sources: ϕpost, Refinitiv dataChanges In Global Rate Hikes Expectations | Sources: ϕpost, Refinitiv data