Offline24h

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.

The UST market experienced a massive, sharp rally across all tenors, immediately following the release of a significantly weaker-than-expected CPI report. This data shock fundamentally shifted market expectations, leading to an aggressive repricing of the Fed’s easing cycle. The 10Y UST yield plummeted by over 15bp to the 3.95%-3.96% region, decisively breaking below the critical 4.00% technical level. The 2Y UST yield, which is highly sensitive to policy rates, saw an even more dramatic drop of over 20bp to the 3.35% area.

This resulted in an abrupt and sharp bull steepening of the yield curve. The 2Y-10Y spread tightened significantly, moving from around -53bp to approximately -40bp, as the front end reacted more intensely to the prospect of imminent and deeper rate cuts. This curve action signals that markets now place a much higher probability on a near-term economic slowdown and a necessary Fed pivot. The weak inflation print drastically reduced the perceived risk of Fed overtightening.

Risk assets reacted positively to the dovish development, with the S&P 500 soaring and credit spreads tightening. US Investment Grade (IG) CDS spreads narrowed by approximately 2.5bp, while High-Yield (HY) CDS spreads tightened by a substantial 10bp or more, reflecting a sharp drop in perceived credit risk as recession fears temporarily receded. The tightening in HY was pronounced, underscoring the high Beta nature of the sector and the immediate positive impact of lower funding costs.

Strategic Outlook: The CPI shock validates the strategy of extending duration tactically. The sudden drop in yields creates an environment where capital gains on long-duration fixed income assets are realized. The dramatic steepening offers tactical opportunities: managers can now look to lighten exposure to the front end (2Y/3Y) which saw the largest gains, and maintain or even add to long-end exposure (10Y/30Y) to capture further potential steepening moves, particularly if the soft economic data persists. Credit remains attractive, with lower benchmark rates improving borrower solvency and supporting further spread tightening, especially in the IG sector.

UST market was characterized by consolidation within a tight range, reflecting a market pause as investors awaited the next major catalyst—specifically the upcoming CPI report. The 10Y UST yield generally traded around the 4.10% handle, exhibiting a slight upward bias from the start of the period but lacking a decisive breakout. This sideways movement is a balance between dovish momentum from softening labor market signals, which favors lower yields, and fiscal supply concerns and the Fed’s cautious rhetoric, which provides a structural floor. The 2Y UST yield remained anchored near 3.57%, leaving the 2Y-10Y curve deeply inverted at approximately -53bp, an enduring signal of future growth deceleration risk.

The focus remains fixed on the timing and magnitude of the Fed’s easing cycle. While market pricing heavily discounts a rate cut in the immediate future, any surprise from the high-stakes CPI release scheduled for the following period is expected to trigger a significant directional move in yields. The market is positioned defensively, awaiting clarity on whether inflation pressures—particularly from shelter and services—are genuinely receding toward the 2% target, or if the recent cooling was transitory.

The credit complex continued to demonstrate remarkable strength, maintaining tight credit spreads despite underlying UST volatility. The ICE BofA US Corporate Index OAS held firm around 0.82%, with the BBB Corporate Index OAS steady at approximately 1.04%. This resilience, near historical lows, is driven by robust technical factors, including steady institutional inflows and limited supply-demand imbalances, coupled with generally stable corporate fundamentals. The market continues to favor yield-enhancing credit assets over low-yielding, volatile duration exposure.

For portfolio managers, the strategic challenge persists: how to balance the high duration risk inherent in long-end UST (given the risk of an upside inflation surprise) against the minimal spread cushion offered by credit (given the potential for fundamental deterioration in a recessionary scenario). We recommend maintaining a short-to-neutral duration bias while selectively over-allocating to Investment Grade credit, focusing on issuers with low leverage and defensible free cash flow. Tactical positioning remains crucial, with high vigilance for the CPI data to guide immediate curve trades (flatteners/steepeners) and rates hedging.

UST market saw a significant rally, with yields moving lower across the curve, driven primarily by disappointing labor market data and subsequent repricing of the Fed’s easing path. The 10Y UST yield retreated sharply, dropping approximately 7-8bp to the 4.08%-4.09% area after briefly hitting a four-week high. This move was a direct reaction to fresh evidence of a weaker labor market, favoring the argument for earlier or more aggressive rate cuts by the Federal Reserve. The 2Y UST yield fell similarly, dropping around 7bp to settle near 3.57%, though this move meant the 2Y-10Y spread remained deeply inverted at roughly -52bp, signalling persistent caution regarding the long-term growth outlook.

The curve movement represented a bull-steepening bias on the long-end, with the 30Y UST yield dropping around 6bp to 4.68%. This indicates duration extension was suddenly favored as growth concerns overshadowed immediate inflation fears. A key data point was the substantial increase in job cuts announced by US employers, which drastically shifted sentiment toward a dovish monetary policy outlook. This reinforced the market’s focus on growth-sensitive assets within fixed income.

Credit markets, including IG corporate bonds and HY high-yield bonds, generally maintained their defensive posture, with credit spreads exhibiting minor tightening or stability despite the sharp rate volatility. The relative outperformance of spread products versus similar-duration Treasuries continued, suggesting technical demand and credit fundamentals are offsetting rates risk. IG spreads narrowed fractionally, underscoring the search for carry in higher-quality credit. This environment supports a strategic view of overweighting credit selectively, particularly in shorter to intermediate IG tenors, while actively managing rate exposure through tactical duration positioning or hedging, anticipating further data-driven volatility as the market seeks equilibrium between slowing growth and the Fed’s reaction function.

Global fixed income markets experienced a risk-off sentiment coupled with higher interest rate volatility, primarily catalyzed by stronger-than-expected US economic data. The most significant movement was the broad-based rise in UST yields, driven by robust figures like the ADP Employment Report and a solid ISM Services PMI, which collectively reduced the perceived likelihood of aggressive near-term Fed rate cuts. The yield curve demonstrated a bear-steepening bias, as the long end of the curve rose more sharply, with the 10Y yield surpassing 4.15% to hit a one-month high, reflecting increased concerns over fiscal supply and persistent term premium pressure. The 2Y yield also trended higher but was relatively anchored by continued uncertainty surrounding the precise timing and pace of the Fed’s easing cycle. Corporate credit markets reacted defensively to the rise in risk-free rates; both Investment Grade (IG) and High Yield (HY) spreads widened slightly, with the ICE BofA US High Yield Index Option-Adjusted Spread (OAS) ticking up to 3.13% from the previous day’s 3.04%, indicating a minor deterioration in credit risk appetite. This simultaneous movement of higher UST yields and wider credit spreads resulted in a challenging environment for bond investors, especially those with longer duration or higher credit risk exposure. Market participants are now closely monitoring upcoming inflation data and official commentary, which will be essential for validating the current hawkish repricing.

Fixed income markets saw small movement primarily driven by a flattening of the UST yield curve. Yields moved lower across the board, with the short-to-intermediate segment experiencing the largest decline, effectively retracing some of the recent upward pressure. The 2Y yield fell more significantly than the 10Y, a shift likely reflecting subdued market expectations for near-term aggressive monetary tightening, following a period of strong labor data; this curve flattening suggests investors are positioning for a more restrictive policy environment or an eventual slowdown, despite current economic resilience. The 10Y yield followed suit, though its decline was more contained, indicating ongoing fiscal supply concerns and term premium pressure persist. Credit markets displayed resilience and a risk-on tilt, with Investment Grade (IG) and High Yield (HY) option-adjusted spreads (OAS) continuing their recent trend of minor tightening, underscoring stable corporate fundamentals and sustained investor demand for carry at elevated absolute yield levels. European and Asian sovereign yields largely tracked the UST move, with local bond markets consolidating against the backdrop of global rates movement. Market focus remains squarely on upcoming US economic data, particularly labor and inflation reports, as well as commentary from Federal Reserve officials, which are crucial for determining the next directional catalyst for the rates complex.

The High Yield (HY) corporate bond segment exhibited a positive bias aligning with the general risk-on sentiment observed across broader financial markets, which was bolstered by a pull-back in UST yields. Credit spreads (Option-Adjusted Spreads, or OAS) in both the US and Euro HY markets continued their recent trend of modest tightening. This compression in spreads suggests that credit risk concerns remained low, with investors willing to accept a narrower premium over risk-free rates due to confidence in corporate fundamentals and a robust demand for carry (the income generated by holding the bonds at higher absolute yields). The outperformance of credit relative to the sharp decrease in UST yields contributed to strong total returns for HY investors in this short window.

In the European Sovereign Debt market, bond yields largely tracked the downward movement seen in USTs, with German Bund yields serving as the region’s benchmark, registering slight declines across the curve. This mirrored the broad relief rally in government bonds globally after the recent surge. Peripheral European sovereign bonds, such as those from Italy and Spain, also saw their yields move lower, resulting in a narrowing of spreads versus German Bunds. This tightening is a favorable indication, reflecting reduced perceived risk in the Eurozone periphery, supported by the stable policy backdrop from the European Central Bank (ECB) and the global search for yield. The synchronized decrease in both core and peripheral yields underscores the strong global rates correlation during this specific time frame.

The fixed income market observed a relatively mixed session, primarily characterized by slight upward pressure on UST yields in the long end, while the short end showed minor fluctuations following a recent surge. The UST 10Y yield continued to consolidate its position near the multi-week highs reached last week, closing November 3 at approximately 4.11%, a minor daily increase of around 3.4bp, reflecting cautious market sentiment. This sustained level near 4.1% is a direct consequence of the Federal Reserve’s recent cautious tone regarding future rate cuts and resilient, albeit mixed, economic data, which have dampened expectations for aggressive near-term monetary easing.

The longer end of the curve, notably the 30-year bond, exhibited a more pronounced rise, climbing 2.0bp to 4.689% on November 3, marking its fourth consecutive day of yield increases, suggesting increasing concern about long-term fiscal deficits and persistent supply pressures, thereby pushing term premiums higher. Conversely, the short-term 2Y yield saw a slight decline of approximately -1.0bp on the previous trading day (November 2), settling around 3.60%, demonstrating that while the market is still pricing in the hawkish Fed tilt, the extremely short end of the curve is finding minor support amid softer manufacturing data reported earlier in the week.

The overall outlook remains one of heightened sensitivity to incoming economic releases, particularly labor market and inflation data, which will heavily influence the path of UST yields. The modest bear-flattening witnessed recently, where short-term yields rose faster than long-term yields, has paused, but the overall yield curve is pressured by a persistent policy-rate-at-peak narrative, keeping the bias for shorter-duration instruments slightly more defensive. Corporate credit markets remained stable, with Investment Grade spreads holding near tight levels, benefitting from the search for yield despite the overall volatility in sovereign bonds. The market is positioned neutrally, anticipating clarity from the next batch of high-impact macroeconomic indicators.

The fixed income market observed a mixed yet fundamentally risk-off tone, with UST yields generally exhibiting upward pressure, especially in the short-to-intermediate segment, reflecting investor caution and hawkish repricing following recent central bank signals and resilient economic data. The UST 10Y yield showed marginal volatility but largely sustained levels near the 4.10% mark, closing October 31 around 4.11%, a three-week high at the time, indicating a pause in the multi-day rally that preceded it, driven by a slightly more hawkish Fed tone despite an expected rate cut. Shorter-term securities, like the 2Y, also climbed to over a one-month high, demonstrating acute sensitivity to the Federal Reserve’s updated stance, where officials stressed that further cuts were not guaranteed, contributing to persistent flattening or slight inversion pressure on the short end of the yield curve. Market-implied odds for a December rate cut saw a notable decline, falling sharply from near 90% to around 63%, illustrating the dramatic shift in near-term monetary policy expectations that pressured bond prices.

In the corporate fixed income space, the technical backdrop remained largely supportive, although credit spreads, particularly in Investment Grade (IG), are near historical tightness, suggesting limited room for further spread compression despite strong demand. IG corporate bonds continued to perform well, generally outperforming similar-duration Treasuries, benefiting from robust institutional inflows and lower-than-expected new issuance volume. The broader fixed income outlook for November 2024 is dominated by heightened sensitivity to the evolving political landscape and potential fiscal trajectory, with post-election scenarios pointing toward higher nominal yields and term premiums should inflationary fiscal policies materialize. This has led some strategists to project a modest rise in the UST 10Y target to 4.25% within a 12-month horizon, shifting the overall sentiment toward a neutral duration stance for the near future, favoring shorter-dated, high-quality credit for carry.

Global fixed income markets saw modest volatility and range-bound , largely digesting recent resilient US economic data and anticipating upcoming central bank commentary. UST yields generally held steady or showed slight mixed movement, with the short end exhibiting minor fluctuation as traders weighed Fed rate path uncertainty; specifically, the 2Y yield hovered near recent levels, suggesting near-term policy expectations remained largely priced in, while the 10Y yield saw minimal change, reflecting a cautious pause following the prior week’s movement driven by stronger-than-expected US GDP and labor data. Corporate credit markets remained supported, with Investment Grade (IG) and High Yield (HY) spreads broadly tightening slightly, indicating persistent investor appetite for yield and a stable credit environment, despite the higher absolute yield levels; the tightening in credit spreads points to continued confidence in corporate fundamentals. European sovereign bonds mirrored the stability in the US, with German Bund yields flatlining, as the market absorbed the recent ECB decision and awaited fresh inflation figures. Asian sovereign bonds displayed similar steadiness, though with some localized movement in response to specific regional data releases or currency fluctuations. Overall, the fixed income landscape in this window was characterized by consolidation, with participants awaiting clear directional catalysts from major economic reports or central bank guidance, suggesting a temporary equilibrium in the rates complex.

Fixed income markets experienced a sharp sell-off in the immediate aftermath of the US Federal Reserve’s October FOMC meeting, despite the committee delivering the widely expected 25bp rate cut to bring the Fed funds target range to 3.75–4.0%. The adverse reaction, characterized by rising yields (falling bond prices), stemmed directly from Fed Chair Jerome Powell’s post-decision commentary. Powell explicitly cautioned that a December rate cut was “not a forgone conclusion… far from it” , creating significant discord and repricing the market’s expectation for future policy easing. This warning effectively removed the assumption of a clear, aggressive easing path that had been priced into Fed funds futures. The long-end of the UST curve reacted negatively to this muted anticipation of a December cut. Specifically, the US 10Y yield had been hugging the 4% area but spiked up to 4.05% post-announcement, indicating a sentiment shift from looking down to looking up for a change. Furthermore, longer tenors were unhelped by the Fed’s second key decision to stop the shrinkage of its balance sheet from December 1, as the move involves reinvesting maturing Treasury securities and offsetting maturing agency MBS by buying T-bills. The T-bills buying, as a stand-alone measure, offers no benefit to longer bonds. The decision also exposed internal divisions, with two dissents: one official preferring a 50bp cut and another favoring no change. Overall, the message that the policy rate may be closer to neutral than the market previously believed upset risk assets and prompted a re-pricing of the Fed cycle, which is expected to provide continued support to the Dollar. The prevailing view among analysts is that while the economic assessment—”moderate pace” of expansion, “slowed job gains,” and “somewhat elevated inflation”—was unchanged from September , the increased uncertainty surrounding the next move drove the fixed income sell-off. Despite the market’s immediate sharp repricing, some analysts still forecast a December move with two more cuts in 2026, driven by a potentially rapidly cooling jobs market.