Credit Market Report

April 25, 2018

U.S. 10-year government bond yield comes off 3% level, but triggers stock market tremors: The yield on the 10-year Treasury note touched the 3% level early Tuesday, a key psychological level for the benchmark government bond, which has endured a sustained selloff amid swirling concerns over growing inflationary pressures and a hawkish Federal Reserve that has indicated economic growth is sufficiently healthy to withstand higher rates.

Influencing Factors:

  • Rising inflation expectations and speculation that the Federal Reserve will be more aggressive in lifting rates are keeping Treasury yields at elevated levels. The outlook for higher consumer prices has partly been spurred by a rally in oil and metals prices, which usually feeds into higher headline inflation.
  • That has helped stoke a modest steepening of the yield curve, with the spread between the two-year note yield and the 10-year note yield widening to 52 basis points on Tuesday from a prerecession width of 41 basis points.
  • “Using the breakeven inflation rate on TIPS as the best measure for inflation expectations, investors are now banking on inflation approaching 2.25%. That really doesn’t leave much excess yield for bond investors after inflation. So as inflation moves higher, yields move higher; and everything is pointing to higher inflation,” said Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors.

Fixed Rate Indices

Maturity Coupon Yield Change
2-year... 02/20 1 2/8% 2.466%   ( - )
5-year... 02/23 1 6/8% 2.810%   ( - )
7-year 02/25 2 0/8% 2.936%

  ( + )

10-year 02/28 2 3/8% 2.983%   ( + )
30-year 02/48 3 % 3.167%   ( + )
Treasury Rates are as of 04-24-18 as reported by The Wall Street Journal.

Prime Rate

Prime... 4.75%
Last effective change 03-22-2018

Floating Rate Indices

30-day LIBOR..... 1.89826%
90-day LIBOR..... 2.36167%
6-month LIBOR... 2.51625%
1-year LIBOR...... 2.76875%

London Interbank Offered Rates are as of 04-24-18 as reported by The Wall Street Journal.

Spread Markets

Maturity Spreads Rate
2-year SWAP.... 29.30 bps 2.7590%
5-year SWAP.... 13.10 bps 2.9410%
7-year SWAP.... 4.00 bps 2.9760%
10-year SWAP... 3.50 bps 3.0180%

SWAP Rates are as of 04-24-18 as reported by the Wall Street Journal.