Strategy Daily 2026 10 12

Evelyne Gomez-Liechti | Multi-Asset Strategist (Mizuho International Plc) |

This is Non-Independent Research, as defined by the Financial Conduct Authority. This material should be regarded as a marketing communication.

USTs ended the week weaker, with the belly leading the sell-off as higher oil prices and renewed Middle East tensions reasserted themselves as the dominant macro driver. After an initial London-session rally, fresh Iran-related headlines pushed WTI back above $92/bbl, taking 5Y yields to around 5.05% and 10Y yields close to 5.28% at the intraday highs and flattening the curve, with 2s10s and 5s30s ending modestly flatter on the day. Treasuries recovered some ground into the close as crude reversed lower following reports that Russia could boost diesel supplies, helping WTI retreat from its highs. Swap spreads were little changed in subdued trading conditions, while the dollar remained supported by the combination of firmer oil prices and higher Treasury yields. Looking ahead, focus shifts to Wednesday's CPI report and the start of Q3 bank earnings, with markets continuing to price only a limited amount of additional Fed tightening this year. The dollar index closed at 102.21, up a slim +0.07% on Friday, reflecting a muted session with no dominant directional catalyst. Markets are closed today due to the Columbus Day holiday.

EGBs finished a volatile session little changed overall as oil and geopolitical headlines remained firmly in the driving seat. Bunds opened stronger and initially extended gains as energy prices eased, but those moves gradually reversed as crude recovered through the European morning. The 10Y Bund yield briefly pushed up to 3.48% before retracing towards 3.45% as oil came off its highs, only to move back towards 3.49% following further Iran-related headlines later in the session. Despite the swings in core rates, semi-core and peripheral markets outperformed, with BTP-Bund and OAT-Bund spreads tightening by as much as 4-5bp intraday before ending the week around 1.5-2.5bp tighter. Flows were light across the board, reinforcing the sense that price action was being driven by macro headlines rather than positioning or data. Looking ahead, Monday's holiday-thinned session should leave markets focused on energy developments, IMF meetings and central bank speakers, with German and French bill supply the only notable issuance event. The euro slipped -0.10% to 1.1200, giving back a small amount of ground against the dollar as the oil-driven risk tone kept the currency on the back foot.

Gilts tracked the broader oil-driven rates story, opening firmer alongside Bunds and USTs before reversing lower as energy prices rebounded. Selling intensified into the US open, with yields rising 4-5bp on the day and the curve flattening as markets continued to price the inflation implications of higher oil prices. The 10Y Gilt yield reached 5.44% before retracing towards 5.40% as crude briefly eased in early New York trading, although renewed geopolitical headlines later pushed yields back up towards 5.46%. Cross-market moves remained important, with the 10Y Gilt-Bund spread tightening to around 195bp before giving back part of the move. Away from geopolitics, domestic drivers were limited, with attention instead turning to next week's appearances from Breeden and Mann and Thursday's UK activity data. The DMO announced a £500mn programme tender of the 4.0% 2063 Gilt for Tuesday, while S&P reviewed the UK’s sovereign credit rating, affirming it at AA / Stable. Sterling outperformed modestly, closing at 1.3234, up +0.05%, supported by relative BoE hawkishness even as broader FX volatility remained subdued.

JPY Markets are closed today due to the Sports Day holiday.

Multi-Asset Strategy Daily Mizuho International Plc 1

This publication has been prepared by Mizuho International plc’s Fixed Income Sales & Trading department and represents the views of Mizuho International plc (“Mizuho International”) front office staff. It has not been prepared in accordance with legal requirements in any country or jurisdiction designed to promote the independence of investment research and is not subject to any prohibition on dealing…