TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 12+ TICKS HIGHER AT 106-28+

Yields drop across the curve after Democratic sweep. At settlement, 2-year -5.8bps at 4.577%, 3-year -7.2bps at 4.633%, 5-year -8.0bps at 4.684%, 7-year -8.0bps at 4.774%, 10-year -7.4bps at 4.892%, 20-year -6.3bps at 5.304%, 30-year -5.5bps at 5.279%.

THE DAY: Treasuries rallied across the curve on Wednesday, led by the belly, in the wake of the Democratic sweep in the midterms. The lower-yield environment was supported by collapsing oil prices, with Brent crude sliding over USD 10/bbl at one point, helping ease inflationary concerns amid prospects of a quicker end to the US/Iran war. Meanwhile, expectations of enhanced regulation could weigh on growth, while further fiscal expansion may be constrained as Republicans will no longer be able to pass their reconciliation 3.0 package, with the prospects of additional tax cuts also reduced under a Democratic Congress. Another consideration is policy uncertainty, with Trump stating ahead of the midterms that he would become "Mr Veto" in the event of a Democratic sweep, potentially making further Democratic spending measures difficult to enact.

Regarding the decline in oil prices, further pressure was seen during the session on reports that Trump was considering dismissing Hegseth, although he later denied these reports, while Democratic leaders Schumer and Jeffries also spoke about ending the US/Iran war.

Elsewhere, the Quarterly Refunding Announcement was in focus. Auction sizes for the upcoming quarter were left unchanged, as expected, but the Treasury tweaked its guidance by dropping the “at least” language when referring to maintaining auction sizes over the next several quarters, potentially opening the door to increased issuance sometime in 2027. The TBAC minutes suggested that increases would likely be appropriate in H2 next year. The statement offered little detail on the shape of those changes, initially weighing on the long end, with yields briefly rising. However, the TBAC minutes noted that members generally agreed additional issuance should be concentrated in the 2- to 10-year sector and included a meaningful discussion of potential future changes to 20-year and 30-year issuance. This potentially signals a shift away from the more expensive long end towards the front end and belly, seeing the initial move higher in long-end yields unwind. Buyback operations are set to maintain the status quo, with long-end operations at a maximum of USD 6bln.

US data saw the ISM Services PMI fall slightly more than expected amid a decline in new orders and business activity, although employment improved and prices eased marginally, albeit remaining very elevated. The data did little to shift the dial.

• US to sell USD 58bln of 3-year notes on November 9th, USD 42bln of 10-year notes on November 10th and USD 25bln of 30-year bonds on November 12th.

• US to sell USD 115bln of 4-wk bills and USD 110bln of 8-wk bills on November 5th; all to settle on November 10th
• US sold 17-wk bills at a high rate of 4.090%, B/C 3.26x

• Fed Hike Pricing via CME FedWatch: Dec 20.3bps (prev. 19.7bps), Mar 40.8bps (prev. 40.7bps).
• EFFR at 3.88% (prev. 3.88%), volumes at USD 113bln (prev. USD 108bln) on November 3rd
• SOFR at 3.97% (prev. 3.95%), volumes at USD 3.26tln (prev. USD 3.268tln) on November 3rd
• NY Fed RRP op demand at 0.23bln (prev. 0.43bln) across 1 counterparty (prev. 3) on November 4th