MNI US MARKETS ANALYSIS - Curve Steepens, Putting 10y Yields at New Highs

US TSYS: Long End Slides With Fedspeak Centre Of Otherwise Bare Docket

• Cash Tsys see a sizeable twist steepening with the very long end cheapening doing all the lifting as 2s30s inversion retraces.
• Long-end weakness is widespread across global core FI (UK 30Y outperforming, German 30Y underperforming) which sees the gap to UK yields widen slightly after the US 30Y re-exceeded the UK mid-week with a further climbdown of British fiscal plans and PM Truss’ resignation.
• 2YY -0.7bps at 4.603%, 5YY +1.3bps at 4.458%, 10YY +4.5bps at 4.274%, and 30YY +8.1bps at 4.3%.
• TYZ2 trades 5+ ticks lower at 109-06, just off session lows of 109-03+ on modestly above average volumes. It sees the bear trend extend, through support at 109-12+ (0.764 proj of Oct 4-10-13 price swing) to open 108-20 (1 proj).
• Fedspeak: Williams (0910ET), Evans (0940ET) and Daly (1130ET) – latter not on BBG calendar
• Bill issuance: US Tsy $57B 13W, $45B 26W bill auctions – 1130ET

30Y yields for US (white) and UK (yellow)Source: Bloomberg

STIR FUTURES: Terminal Holding At 5% On Last Day Before Fed Blackout

• Fed Funds implied little changed after yesterday’s further large increase which drove a 5% terminal.
• 78bp for Nov 2, 144bp to 4.52% Dec and peak 5.02% in May’23 all unchanged, with the 4.76% for Dec’23 -2.5bp.
• That additional 25bp hike on net through 2023 is in stark contrast to both rates of circa 4.4% pre-US CPI.
• NY Fed Williams gives opening remarks at 0910ET, Evans (’23) at 0940ET and Daly (’24) at 1130ET, the latter on the housing market and state of the economy.

FOMC-dated Fed Funds implied ratesSource: Bloomberg

EU: No Final Deal On Energy; Door Ajar For EU-Wide Energy Price Relief Program

The EUCO summit of EU member state heads of gov't/state has begun its second day, with focus turning from controlling energy prices and securing supply to foreign policy issues.

• Last night, EU leaders reached something of a deal on energy prices and security regarding capping price spikes and having joint gas purchases, although the final decisions will either be kicked to next week's energy ministers' meeting or, as German Chancellor Olaf Scholz hinted at, another EUCO summit.
• Conclusions on energy and economy: https://www.consilium.europa.eu/en/press/press-rel...
• Hans von der Burchard at Politico on the prospect of EU-wide programmes to help with energy price crisis: " Fresh signs emerged[...] that Germany and Netherlands are willing to explore a new EU finance instrument [...] if existing money pots [...] aren't enough. Such EU financing might be needed to cushion the fallout of the energy crisis in some countries [...] German Chancellor Olaf Scholz left the door open to such a solution..."We made a decision here that gives a mandate to investigate what is possible," [...]. Similarly, Dutch PM Mark Rutte said that if existing money wasn't enough, the EU would investigate "what might be needed" additionally. As a caveat, both Scholz and Rutte stress that "existing funds,"[...] should be used first before going further."

UK: Truss Spox-New PM To Decide On Whether Fiscal Plan To Be Delivered 31 Oct

Outgoing Prime Minister Liz Truss' spox states that, "We are working in preparation for a medium term fiscal plan on 31 October, the new PM will decide whether it will be delivered then."

• Cat Neilan at Tortoise states that the two candidates that go through to the ballot of Conservative party members to become the new leader will each get the chance to work with the Treasury ahead of the expected 31 Oct announcement: "Candidates likely to have access to the team during the week (if it lasts that long, and they want it)"
• With OBR figures expected and BoE to deliver rate decision on 3 Nov, the prospect of a new PM upending the plans being laid out currently by Chancellor of the Exchequer Jeremy Hunt could cause significant delays and uncertainty.

FOREX: Greenback Looks Through Chinese FX Intervention as Yields Surge

• The dollar trades firmer headed into Friday's NY session, reversing a brief bout of weakness that came just ahead of reports that China state banks were selling dollars to shore up the USD/CNY rate ahead of 7.25. The supposed intervention failed to reverse the tide, however, with the USD/CNY touching 7.2512. The currency fluctuations followed fixed income markets closely, with the intraday dollar high coinciding with the rise to 4.2886% in the US 10y yield.
• For USD/JPY, the pair broke to new highs following Kyodo reports flagging a Y20trl spending package. The report sees the package subject to cabinet approval as soon as Oct 28th. The total spending looks to have been downsized after LDP officials saw "an economic stimulus package of ~30t yen" on Oct 18th. The rate took out resistance at 150.45 (3.618 proj of the Aug 2 - 8 - 11 price swing) and opens 151.20 next.
• GBP is the poorest performer, with the acute political risk premium on the currency making itself evident in a rising yield environment. EUR/GBP is back above 0.8750, while GBP/USD touches new weekly lows of 1.1123. The moves also follow a dire set of retail sales data for September, which slipped well below expectations.
• Data should play second fiddle to central bank speakers Friday, with Fed's Williams and Evans on the docket today ahead of the beginning of the media blackout at the end of play today. Canadian retail sales are on the docket, expected at +0.2% on the month.

POLAND: Yield Rally Persists, 10y at New Cycle High

• The run higher in the Polish yield curve persists, with new highs in the 10y yield at 8.948% this morning. That's a ~35bps rise in the longer-end, bear-steepening the curve in the process.
• Moves follow disappointing retail sales, construction output data today but come as part of broader weakness for Polish bonds amid growing evidence of disharmony among the NBP board and concern over Poland's fiscal path.
• This was reflected in the interview with Morawiecki this morning, in which the PM flagged his concern over debt servicing costs, but showed little sign of any change in spend/tax policy over the short-term.