Strategy Daily 2026 10 15

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 but flatter after a stronger September CPI triggered an initially sharp hawkish repricing, before the sell-off was largely faded as equities deteriorated. We had a beat in Core CPI which drove a front-end-led bear flattening as 2y yields spiked from around 4.77% to 4.95% and 5s30s compressed from 56bp to 47bp. The move quickly transmitted across assets: the USD jumped, tech led equities lower, with SOX -4.1% and Nasdaq -2.0%, while October Fed hike pricing briefly moved above 50%. Risk-off flows subsequently generated a strong duration bid, with 10y yields fully reversing their post-CPI rise from a 5.325% peak and 2y yields retracing to 4.80%; 5s30s resteepened to around 53bp as the belly outperformed. SOFR similarly recovered sharply from post-data lows, leaving October hike odds around 36% and 30bp of tightening priced through December. Swap spreads widened post-CPI, particularly at the long end, with 30y spreads closing 1.75bp wider at -63.5bp after touching -62bp intraday, as the initial paying pressure was partially faded alongside the Treasury rally.

EGBs initially rallied and curves steepened as Lagarde and Moulin pushed against a more aggressive ECB path, with Euribor contracts in H2-27/early-28 rallying up to 3bp before stronger US CPI abruptly reversed the move. The US rates shock transmitted directly into Europe: 10y Bund yields moved from unchanged to +3bp and OATs/BTPs sold off 5-6bp as the rates move combined with renewed risk aversion to pressure semi-core. OAT-Bund widened sharply from an intraday 136bp to 142bp, while BTP-Bund moved from 106bp to 109.5bp. The initial CPI shock was partially faded into the close, leaving Euribor and the short end broadly unchanged, but the long end retained much of the sell-off, with 10y Bunds +2bp and OATs/BTPs +5-6bp. The relative underperformance in France also comes ahead of a heavy supply session today, with France and Spain due to sell up to €17.5bn across the 2-7y sector.

Gilts outperformed as the session’s initial dovish impulse from BoE Chief Economist Huw Pill proved more durable than the subsequent US CPI shock. Pill questioned the four hikes priced over the coming year, driving an 8.5bp rally in late-27/early-28 SONIA and pulling short-dated Gilts lower in yield, with the move transmitting across the curve and producing early bull steepening. Stronger US CPI then sharply reversed the rally, taking Gilts back towards the previous close and pushing the expected OIS peak to 4.853% in November 2027, equivalent to 112bp of tightening, despite Pill’s pushback. Gilts subsequently regained a modest duration bid into the close, leaving 2-30y yields 1-2bp lower and preserving their cross-market outperformance: 10y UK- Germany tightened 2.7bp to 195.1bp, while UK-US compressed 5.8bp to 16.6bp.

Multi-Asset Strategy Daily Mizuho International Plc 1

JGBs rallied sharply as the overnight equity sell-off drove a broad duration bid, with futures extending gains as Japanese stocks opened lower and reports of prospective 10y buying from a major domestic adding support to the long end. The rally was strongest through the 7-20y sector, leaving 2y yields just 1.5bp lower at 1.905% against -5bp in 5y, -7.5bp in 10y and -8bp in 20y, producing a clear bull-flattening bias from the front end into the long end. Futures briefly reached +72 ticks in the afternoon before paring gains as equities recovered, but subsequently rebounded and reinforced the flattening into the close.

The ultra-long end lagged the 20y sector, generating a bull-steepening bias further out the curve: 30y yields fell 6bp to 3.980% and 40y 5.5bp to 4.090%, versus the 8bp rally in 20s. Cash flows were less unequivocally bullish than the price action, with selling evident across parts of the 5y, 10y and 20y sectors, suggesting the move was primarily futures- and risk-off-led rather than underpinned by uniformly strong outright demand.

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