ISMS 15: Top 5 DM Country Interest Rates – Steep US Inversion
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Developed Countries – Vast DM Country increases in ST and LT rates, Japan stays an outlier, US looks worst based on yield curve inversion
Interest rate overview
- US 3m yield 4.9%, Japan -0.3%, Germany 2.6%, UK 4.1%, France 2.8%
- US 1yr yield 4.7%, Japan -0.1%, Germany 2.9%, UK 4.0%, France 3.0%
- US 10yr yield 3.6%, Japan 0.3%, Germany 2.3%, UK 3.5%, France 2.8%
Year-on-year changes
- 3m yield in US up the most YoY as it started the interest rate hike
- USA 3m yield was up 4.4ppts, Japan down 0.2ppts, Germany up 3.2ppts, UK up 3.5ppts, France up 3.4ppts
- 1yr yield has risen significantly in developed countries; only Japan’s yield didn’t move
- USA 1yr yield was up 3.1ppts, Japan down 0.1ppts, Germany up 3.3ppts, UK up 2.7ppts, France up 3.5ppts
- 10yr yield grew in all developed countries YOY, even in Japan
- USA 10yr yield was up 1.2ppts, Japan up 0.1ppts, Germany up 1.8ppts, UK up 1.9ppts, France up 1.8ppts
Rate progression
- 3m yield has risen steepest in the US
- Germany, UK, and France 3m yield follows US, but with a delay
- Japan remains an outsider and continues with its negative interest rate policy
- 1yr yield in developed countries moved up aggressively
- However, in March 2023, US 1yr yield dropped for the first time in 12 months
- Other developed countries also saw a slight fall recently
- 10yr yield has risen in all developed countries, but starts to show flattening behavior recently
- Since October 2022, the 10yr yield among the developed countries hasn’t moved much and stayed flat
Yield curve
- 3m yield curve inversion in the US widened after the Fed aggressively increased short-term rates
- In March 2023, the 3m rate was 1.3 ppts higher than the long-term rate
- 1yr yield curve in Japan steepened over the past 12 months
- Japan is among the few countries that haven’t seen a yield curve inversion
- Quite the opposite is true as the differential between 10yr yield and 3m rates doubled over the past 12 months
- 10yr yield curve in Germany turned into negative territory, but far less severe compared to World
- 10yr yield curve in the UK also saw a slight widening of its yield curve inversion
- 10yr yield curve in France flattened massively and seems likely to invert soon
Key points
- Aggressive ST rate hikes led by the US and followed by European developed countries
- LT rates seem to have peaked and fell MoM
- Japan with different policy sees almost no movements in both ST and LT rates
- US faced steepest inversion among developed countries; Japan maintains positive yield curve