US TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 1 POINT AND 9+ TICKS HIGHER AT 106-13

7- and 10yr yields plunge beneath 5% amid persistent haven bid due to AI concerns. At settlement, 2-year -16.8bps at 4.640%, 3-year -17.7bps at 4.713%, 5-year -18.0bps at 4.771%, 7-year -18.2bps at 4.848%, 10-year -16.6bps at 4.953%, 20-year -14.0bps at 5.326%, 30-year -12.5bps at 5.285%.

THE DAY: Yields continued their heavy decline as AI growth concerns remained the driving factor, leaving tech stocks down over 3%. One potential factor behind the Treasury bid is the high-yield market being effectively on hold until after the midterms, with investors wanting permitting and regulatory issues "substantially resolved", CNBC reported, citing credit desks. Meta's Q3 earnings beat, but little detail on FY27 sparked concerns over spending, margins, and funding, ultimately resulting in Meta's 5yr CDS hitting an all-time high.

US data was a non-event, as Initial and Continuing Claims signalled a low-hire, low-fire environment. In the US afternoon, the 5yr TIPS auction tailed by 0.7bps, notably weaker than the prior 0.5bps stop-through. This reflects the recent sharp shift in sentiment on the inflation outlook, as weaker demand from an AI drawdown is seen as more than offsetting the inflationary upside from higher oil prices, as highlighted by money markets paring year-end Fed rate hike bets, no longer fully pricing a 25bps hike (now 20.3bps vs. 25.3bps yesterday).

In Europe, French turmoil persisted, with French yields rising despite European government bond yields being largely lower on the day (BTP yields also higher), leaving the OAT:Bund 10yr spread exceeding 175bps.

• US sold USD 26bln of 5yr TIPS; tailed 0.7bps.
• US sold 4-wk bills at high-rate 3.945%, B/C 2.82x; sold 8-wk bills at high-rate 4.015%, B/C 2.57x.
• US to sell USD 69bln in 2-year notes, USD 70bln in 5-year notes, USD 44bln in 7-year notes and USD 28bln in 2-year floating-rate notes
• US to sell USD 95bln of 13-wk bills and USD 82bln of 26-wk bills on October 26th; USD 95bln of 6-wk bills on October 27th; all to settle on October 29th.

• Fed Hike Pricing via CME FedWatch: Oct 1.8bps (prev. 3.7bps), Dec 20.3bps (prev. 25.3bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 110bln) on October 21st
• SOFR at 3.88% (prev. 3.88%), volumes at USD 2.942tln (prev. USD 2.925tln) on October 1st
• NY Fed RRP op demand at USD 0.351bln (prev. USD 0.237bln) across 2 counterparties (prev. 13) on October 22nd