Rally Extends As Terminal Hike Pricing Fades Further

Yields are down across the major curves early Tuesday, with the short end outperforming in a (mostly) bull-steepening move.

• The RBA's decision to scale down rate hikes in its decision overnight (25bp vs 50bp expected) has kept downward pressure on central bank terminal rate expectations. Fed rates are seen getting to a peak of just below 4.4% in March, vs closer to 4.5% at end-Sept and 4.8% highs early last week.
• This has helped risk assets rally with the USD remaining under pressure; periphery EGB spreads are tighter too.
• Once again it's the UK long end underperformance that sticks out: today, a very weak Oct-61 Gilt auction (widest tail since 2018) pushed 30Y yields above 3.90%.
• Up later today are US durable goods data, Fed speakers including Daly, Jefferson, Logan, Mester, and Williams, with ECB's Lagarde appearing as well.

Cash yield update:

• US: 2-Yr down 8.7bps at 4.0266%, 5-Yr down 7.4bps at 3.8039%, 10-Yr down 4.7bps at 3.5913%, 30-Yr down 2.1bps at 3.6576%.
• DE: 2-Yr down 13.1bps at 1.489%, 5-Yr down 14.4bps at 1.623%, 10-Yr down 10.5bps at 1.812%, 30-Yr down 5.6bps at 1.866%.
• UK: 2-Yr down 19.7bps at 3.856%, 5-Yr down 17.9bps at 4.047%, 10-Yr down 12.8bps at 3.836%, 30-Yr up 1.7bps at 3.905%.
• Italy / German 10-Yr spread 4.2bps tighter at 228.7bps