Updated: 2015-03-30, 16:00:20 ET
The Interest Rate Outlook
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.
|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%.