Strategy Daily 2026 10 14

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 finished mixed to marginally flatter in a choppy, oil-driven session. Softer crude prices initially supported a broad duration bid across DM rates, but the move reversed as WTI climbed from roughly $92 to nearly $95 amid renewed concerns around Middle East energy infrastructure. The resulting sell-off was concentrated in the front end and belly, extending curve flattening, before Williams sparked a partial recovery by reiterating that one further hike may be appropriate this year while pushing back against the need for additional tightening in 2027. The 20y sector outperformed both on the curve and versus swaps amid speculation that Treasury could reduce long-end issuance, helping 20y spreads richen despite wider spreads across the curve. SOFR reds and greens outperformed late in the session on the Williams comments, while equities were mixed ahead of CPI. DXY fell 0.2% on Tuesday, retreating from a three-month high hit Monday, as the global bond rally pushed yields lower.

Lower oil prices drove a duration bid across EGBs, with front-month WTI falling from $94 to $92 from Monday evening into Tuesday morning and pulling 10y yields 4-5bp lower at the open. OATs led the rally as recent France-specific cheapening partially reversed, taking the 10y OAT yield more than 8bp lower and tightening the OAT-Bund spread by 5bp to 137.8bp, while 10y BTPs rallied 6.5bp and Bund yields held within a 3.425-3.445% range. Curves bull-flattened into the 10y sector before steepening modestly further out, although long-end yields still fell 3-5bp and the 30y EUR swap rate tested its 50-day moving average at 3.412%.

The front end initially followed oil lower, with Euribor implied rates down as much as 3bp around late- 2027/early-2028, but surrendered some gains as crude rebounded late in the session; the strip continues to price hikes in December, March and September, with no further tightening thereafter. Heavy sovereign supply failed to disrupt the rally, with the EU attracting books above €73bn and €87bn for its 7y and 15y syndications, while a weak 5y Bobl auction pointed to isolated German supply indigestion rather than a broader duration problem. EUR/USD continued its month-long slide, hitting its lowest level since May 2025, evident against GBP and CHF.

Multi-Asset Strategy Daily Mizuho International Plc 1

Gilts opened with a duration bid as lower oil supported a bull-flattening move, with 10y and 30y yields initially falling around 4bp and 5bp respectively, before reports of Saudi strikes on Sanaa pushed crude higher and reversed much of the rally. The late-session cheapening was front-end and belly-led, with short Gilts erasing their gains and intermediate yields returning to unchanged, while the long end retained modest outperformance, leaving the generic 30y yield 1bp lower at 5.92% and extending its recovery from last Thursday’s 6.045% intraday peak. Strong demand for the £500mn 37y programmatic tender helped absorb long-end supply, drawing a 3.98x bid-to-cover and only a 0.2bp tail, but the durability of the move remains tied to fiscal risk ahead of the 28 October Budget.

The policy constraint is increasingly stark, with calls to raise £8bn to rebuild fiscal headroom running directly against business demands for tax relief to support hiring. SONIA was comparatively quiet, although renewed oil strength left implied rates around 1bp higher through H2 2027 and 1bp lower further out. Attention now turns to Pill’s speech and the £5bn 4y gilt auction, with recent MPC rhetoric increasingly focused on second- round inflation risks and the danger that policy is insufficiently restrictive. GBP outperformed on the day supported by hawkish BoE commentary.

JGBs saw a mixed session with the curve steepening despite firmer futures, as reports suggesting a lower probability of back-to-back BoJ hikes supported the front end. 2y-5y maturities outperformed on receiving interest, while a softer-than-expected 5y auction failed to derail…