Updated: 03-19-2018

Interest rate spreads saw fairly limited movement over the past week, but the 2s10s spread resumed its downward march, tightening by four basis points to 60 bps. This leaves the spread just ten basis points above its cycle low and 17 bps below the swing high from February 12. For its part, the 2s30s spread sits just eight basis points above its cycle low.

The high yield spread tightened by three basis points, reversing a third of last week's expansion. The high yield spread has seen limited movement over the past month after spiking off its cycle low in late January.

The investment grade spread expanded two basis points to 96 bps after last week's six basis point expansion. While modest on the surface, this move is notable, because the overall direction of the investment grade spread has deviated from the 2s10s spread in recent weeks. This underscores the relative weakness that has been exhibited by corporate debt so far this year.

The yield spread between Germany's 10-yr bund and the U.S. Treasury 10-yr note edged up three basis points to -221 bps, pausing just above its lowest level since early 2017.

The 5y5y forward rate edged down three basis points to 2.17%, and it now hovers 17 bps below its February high, which marked the highest level in more than three years.

The market remains all but certain that a rate hike will be announced at the March FOMC meeting and it expects two more hikes to follow. The expectations for a fourth hike have been fluid with the fed funds futures market currently pricing in a 30.8% chance of a fourth rate raise taking place in December. 

3/12/2018 3/5/2018 Change
Fed Fund Futures Rate Prediction Mar 2018 (86.0%) Mar 2018 (88.8%)  NA
10yr Treasury - 2yr Treasury 60 bps 64 bps   -4 bps
High Yield - 10yr Treasury 361 bps 364 bps   -3 bps
Corp A - 10 yr Treasury 95 bps 93 bps   -2 bps
10 yr Bund - 10 yr Treasury -221 bps -224 bps    3 bps
5yr, 5yr Forward Inflation Breakeven 2.17% 2.20%   -3 bps

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