WEEKLY US RATES SUMMARY

• The treasury yield curve flattened, with the 1s10s spread tightening -28.1 bp, now at 38.0 bp (YTD change: -75.2bp)
• 1Y: 2.8496% (up 34.7 bp)
• 2Y: 3.1680% (up 10.2 bp)
• 5Y: 3.3419% (up 7.9 bp)
• 7Y: 3.3301% (up 8.4 bp)
• 10Y: 3.2294% (up 6.5 bp)
• 30Y: 3.2808% (up 7.9 bp)
• US treasury curve spreads: 3m2Y at 157.7bp (down -12.7bp this week), 2s5s at 17.4bp (down -2.5bp), 5s10s at -11.2bp (down -1.5bp), 10s30s at 5.1bp (up 1.3bp)
• TIPS 1Y breakeven inflation at 5.01% (down -44.5bp); 2Y at 3.84% (down -55.1bp); 5Y at 2.83% (down -33.2bp); 10Y at 2.55% (down -19.5bp); 30Y at 2.45% (down -9.1bp)
• US 5-Year TIPS Real Yield: +42.8 bp at 0.5430%; 10-Year TIPS Real Yield: +25.6 bp at 0.6480%; 30-Year TIPS Real Yield: +16.4 bp at 0.8510%

US MACRO RELEASES TODAY

• Capacity Utilization, Total index, Change M/M for May 2022 (FED, U.S.) at 79.00 % (vs 79.00 % prior), below consensus estimate of 79.20 %
• Production, Change P/P for May 2022 (FED, U.S.) at 0.20 % (vs 1.10 % prior), below consensus estimate of 0.40 %
• Leading Index, Change P/P for May 2022 (The Conference Board) at -0.40 % (vs -0.30 % prior), in line with consensus
• Production, Manufacturing, Total (SIC), Change P/P for May 2022 (FED, U.S.) at -0.10 % (vs 0.80 % prior), below consensus estimate of 0.30 %

US MACRO RELEASES IN THE WEEK AHEAD

• Focus next week will be the latest University of Michigan sentiment survey
• Fed chairman Powell will be on Capitol Hill on Wednesday and Thursday, appearing before congressional panels

LATEST US ECONOMIC FORECASTS (CREDIT SUISSE)

MACRO OUTLOOK

• Taking into account the drop in asset prices, financial conditions have now tightened as much as during Covid and the great financial crisis, and both times were followed by recessions
• Money markets see rates peaking much higher and sooner than before (1Q23 at the latest), as the Fed is now solely interested in fighting inflation, though it's unclear whether a Fed put is off the table or just way out of the money
• The deeper inversion of the forward curve reflects the higher likelihood of a US recession next year, with the need for the Fed to reverse course
• The real yield curve (real 5s30s spread) has flattened considerably, which is also a good market indicator of how little real GDP growth the market expects

US FORWARD RATES

• Fed Funds futures now price in 69.2bp of Fed hikes by the end of July 2022, and 129.9bp (5.2 x 25bp hikes) by the end of September 2022
• 3-month Eurodollar futures (EDZ) spreads price in -26.5 bp of hikes in 2023 (equivalent to 1.1 x 25 bp rate cut), up 12.5 bp today, and -32.0 bp of hikes in 2024 (equivalent to 1.3 x 25 bp rate cut)

US INFLATION & REAL RATES

• TIPS 1Y breakeven inflation at 5.01% (down -30.7bp); 2Y at 3.84% (down -12.4bp); 5Y at 2.83% (down -1.8bp); 10Y at 2.55% (up 1.5bp); 30Y at 2.45% (up 0.9bp)
• 6-month spot US CPI swap down -8.4 bp to 5.679%, with a steepening of the forward curve
• US Real Rates: 5Y at 0.5430%, +7.6 bp today; 10Y at 0.6480%, +2.0 bp today; 30Y at 0.8510%, +2.3 bp today

RATES VOLATILITY & LIQUIDITY TODAY

• USD rates implied volatility (USD 1 Month by 1 Year ATM swaption) down -6.2 vols at 161.3 normals
• 3-Month LIBOR-OIS spread up 2.6 bp at 8.3 bp (18-months range: -5.5 to 39.3 bp)

KEY INTERNATIONAL RATES TODAY

• Germany 5Y: 1.455% (down -6.3 bp); the German 1Y-10Y curve is 1.8 bp flatter at 118.4bp (YTD change: -42.4 bp)
• Japan 5Y: 0.145% (up 1.0 bp); the Japanese 1Y-10Y curve is 3.7 bp flatter at 48.5bp (YTD change: -15.9 bp)
• China 5Y: 2.576% (down -0.9 bp); the Chinese 1Y-10Y curve is 0.3 bp steeper at 80.6bp (YTD change: -50.2 bp)
• Switzerland 5Y: 1.028% (down -10.3 bp); the Swiss 1Y-10Y curve is 3.5 bp flatter at 109.6bp (YTD change: -55.4 bp)