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  • Rate Brief

    Mar 30 2015 - Rate Brief

    A bit of disappointing economic data last week had little impact on Treasury yields and spreads.

    Overseas, heightened concerns about a potential Greek default failed to draw much action in long-term German Bund yields.

    3/27/2015 3/20/2015 Change
    Fed Fund Futures Rate Prediction Oct. 2015 (57.1%) Oct. 2015 (66.7%) ---
    10yr Treasury - 2yr Treasury 137 bps 133 bps 4 bps
    High Yield - 10yr Treasury 463 bps 468 bps -5 bps
    Corp A - 10 yr Treasury 109 bps 109 bps 0 bps
    10 yr Bund - 10 yr Treasury -171 bps -173 bps 2 bps
    5yr, 5yr Forward Inflation Breakeven 1.98% 2.02% -4 bps

    The probability that the first rate hike will occur in October dropped to 57% from 68%. Weaker-than-expected durable goods demand along with benign inflation growth should keep the FOMC from moving hastily.

    That led to a slight steepening of the 10-year, 2-year yield curve. Yields on the 10-year Treasury rose 3 bps to 1.95%, while yields on the 2-year Treasury declined 2 bps to 0.58%.

    Investment grade corporates continued to move in tandem with 10-year Treasury yields. The default risk on high-yield bonds came in slightly as oil prices inched higher.

    German 10-year bund yields rose 4 bps over the week to 0.24%. The spread to Treasuries was virtually unchanged.

    Consumer prices in February increased for the first time on a month-to-month basis since October 2014. Surprisingly, inflation expectations declined on the news, and the five-year, five-year forward breakeven rate closed below 2% for the week. The Fed's implied CPI target is roughly 50 bps higher at 2.5%.

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