AFS Markets Blog: Morning 30/10/2026

• Meanwhile in markets, with 30y Bund, UST and Japanese government bond yields breaking out to the downside, will the rally spread to shorter, less energy price sensitive tenors?
• If ESTR ECB rate hike pricing is any guide, the answer is yes: 5y and 10y Bund yields should fall further. Yesterday’s ECB press conference confirmed my suspicions that the ECB is very reluctant to raise interest rates further. True indeed, President Lagarde did tee up a quarter point hike for the December meeting, which would bring the deposit rate to 2.75 percent. But she acted with such lack of enthusiasm that the bar for further hikes is very high. I think that in December we will see the final hike this rate hike cycle, which the ECB still refuses to call a rate hike cycle, by the way.  Which is quite telling – I can’t stress this enough. ESTR forward pricing has pushed out pricing of a hike to three percent to the spring of 2027. And with 50/50 odds of a hike later in 2027;
• The only fly in the ointment for the ECB to move to the sidelines and hold its fire are energy prices. However, don’t look at the level of energy prices. It’s the change in prices that matters. Oil futures prices are still trending higher while natural gas futures prices are rallying. But for how long? More importantly, if you trust our central bank overlords (tough ask, In know!), high prices are more likely to cause demand destruction than feed through in a round of broader price increases;
• I clock the 10y Bund at 3.36 this morning, down a good 25bps or so from the October high. We’ve fallen through the resistance at the 50-DMA at 3.45 percent. And the next resistance is at 3.20, the 100-DMA. Ironically, Bund yields peaked early October, right around the time that the French bond market blew up. Germany, which is in precarious fiscal position too, has indirectly benefited from France’s budget troubles;
• The 30y Bund has fallen a good 30bps from the early October high. And at current levels of around 3.70 we’re already testing the 100-DMA;
• In any case, I think we see a ‘2023-lite’ scenario play out in bond markets. Three years ago bond yields plunged like a rock as the market priced out quite frankly insane ECB/Fed rate hike pricing. Back then, we didn’t have soaring energy prices to content with. Hence a much less spectacular rally;
• Turning to some market commentary, JGB yields are down 3-6bps across the curve while USDJPY is flat but volatile after the Bank of Japan held rates this morning as expected. Like the ECB and the Fed, the BOJ prefers a quarterly point of hikes, with the next quarter point hike likely to happen in December;
• Asian equities are lower, with the Nikkei down two percent and the Kospi shedding three percent. AI stocks are leading the losses, though on a five day basis the twenty AI stocks on our screener are still up an average of 3% for the week. S&P 500 futures are down 0.8% for the day but off the lows. Elsewhere, energy prices are mixed for the week, with Brent at $115.8 a barrel slightly lower for the week while Dutch natural gas futures are up a chunky seven percent at 100.2 euros per MWh. On our FX market screener the relentless decline in the euro stands out. The trade-weighted euro is 0.3% for the week while plunging to its lowest level since April 2025;
• Looking ahead, we have Eurozone member state preliminary CPI figures for October as well as Q3 GDP data on tap. Data that is unlikely to move the market much. Focus will turn to Tuesday’s US midterm elections, which is expected to result in a Democratic sweep of the House and the Senate. On Friday we get US monthly labor market data.

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