AFS Markets Blog: Midday 05/11/2026

• Meanwhile in markets, crude oil and gas prices have bounced off their lows, taking some steam out of this morning’s bond rally at the short end of the curve. Further out, however, the rally remains alive, with the multi-decade lows now firmly in the rear-view mirror;

• The 2-year UST yield is flat on the day at pixel time, while the 2-year Bund yield is up 3bps. Short-end sovereign bonds have given back their earlier gains as Brent crude has bounced to $95.75 a barrel, around $2 above the day’s low. Brent crude seems to have found resistance at its 100- and 200-DMAs this morning, having failed to trade below the latter since August;

• Shifting further out along the curve, 30-year Bund and UST yields remain 2–3bps below yesterday’s closing levels. Compared with their late-September/early-October highs, the 30y Bund yield is down 30bps, while the 30y UST yield has fallen 40bps. The decline in long-end yields has been driven by real yields unwinding some of their surge earlier this year. The 10-year real Bund yield is down 20bps from its highs a month and a half ago, while the 10-year real UST yield has fallen 30bps;

• Take your pick of the reasons behind the bond rally. In part, it’s a story of the AI boom (or bubble) losing steam; the prospect of a divided US government struggling to push through further deficit spending; a modicum of focus on fiscal discipline in Europe following the French bond market tantrum; a fresh push for diplomacy in Iran and Ukraine; and central bankers tempering rate-hike expectations as the rapid rise in long-end yields started to do a bit too much of the tightening for them. On the latter, Fed funds futures now price in two additional 25bps hikes by the end of 2027, down from pricing close to four 25bps hikes a little over a month ago. For the ECB, €STR forwards now point to a more modest 50bps of hikes to reach the terminal rate in 2027, compared with 100bps a little over a month ago;

• Touching on equities, the Stoxx 600 surpassed its closing record earlier this session, although at pixel time it has slipped a hair below that high again. The Stoxx 50 is up half a percent this morning but remains 4 percent below its ATH. Nasdaq futures have also pared some of their earlier losses, now down half a percent;

• Looking ahead, the Bank of England’s interest rate decision is due at 13:00 CET. The expectation is that the Old Lady of Threadneedle Street will break out of its holding pattern and raise the policy rate by 25bps, although the vote is not expected to be unanimous. The Czech National Bank is also expected to hike rates by 25bps today. On top of that, we have a wide selection of ECB and Fed speakers to keep us entertained, alongside the weekly US jobless claims figures.

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