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UST yields continued their post-CPI descent, registering a strong follow-through rally as the market reopened for cash trading- 10Y UST yield dropped sharply by 7bp, settling near 4.06%. The primary catalyst was acute labor market weakness confirmed by high-frequency data, reinforcing the disinflationary trend and supporting the dovish pivot narrative. UST notes reached a 2-week yield low, decisively holding below the 4.10% technical level. The front end also maintained tightness, reflecting firm conviction in imminent Federal Reserve easing. Fed Funds Futures now price a 68% probability of a 25bp rate cut by December, a significant increase from the previous session’s close.
This aggressive policy re-pricing drove the yield curve structure toward further bull steepening, rewarding long-duration exposure. Risk-off sentiment evaporated as UST liquidity returned, fueled by positive news regarding a potential end to the government shutdown, alleviating political tail risk.
The credit market remained robust; Investment Grade (IG) and High Yield (HY) spreads held near their tightest levels, supported by the concurrent Dow Jones record high and strong risk appetite. HY spreads continued to trade tightly at 3.02% OAS.
Investor focus shifted entirely to the timing and magnitude of the easing cycle, with the current low-rate regime boosting corporate financing outlooks and generating exceptional fixed income total returns.The fixed income outlook remains unequivocally duration-positive as economic fragility overtakes inflation anxiety.