Global Weekly Fixed Income Report - October 30, 2026
Executive Summary
The bond market spent the week arguing with the Fed, and the front end won the argument for now. The FOMC held at 3.75% to 4.00% on Wednesday with two dissents in favour of a hike, and Chair Warsh declined to pre-commit on December. Yet the 2-year fell 13 basis points to 4.56% and the 10-year 6 to 4.94%, so the curve steepened from the front. 2s10s widened from 31 to 38 basis points. A December hike went from about 84% priced after the meeting to roughly 70% to 75% by Friday, as a third week of technology selling pushed money back into Treasuries.
This week's Chart of the Week splits the 10-year yield into its real yield and the inflation compensation investors demand. The result is stark. Of the 112 basis point rise in the 10-year between 2 January and the 5 October peak, 101 came from the real yield and only 11 from breakeven inflation. The 37 basis point fall since then has the same split: 35 real, 2 breakeven. With headline PCE inflation at 3.6%, the 10-year breakeven has stayed between 2.18% and 2.50% all year. The market is not worried about inflation. It is pricing a Fed that it believes will win, and that belief is now the most underpriced risk in US fixed income.
The US economy is running a pattern we call a capex-heavy, labour-light expansion. Q3 GDP grew 3.4% annualised with business investment up 12.7%, while payrolls rose only 29,000 in September. Growth that comes from machines rather than hiring gives the Fed strong activity and soft labour data at the same time, so each payroll report can move the front end far more than the GDP data does. October payrolls on Friday are the week's main event for duration, and Tuesday's midterm elections will shape the fiscal outlook behind the long end.
African credit rallied as US high yield spreads retraced, and the ranking ran from high beta to low. Against matched Treasuries, Angola tightened 16.8 basis points, Ghana 14.9, South Africa 12.2 and Nigeria 7.6. Egypt was flat once two distorted bonds are removed, the only credit to miss the rally. Its central bank delivered a surprise 100 basis point hike to 20% on Thursday after the pound passed 56 to the dollar for the first time. We read that hike as a credit positive for the Eurobonds, even though it is a sign of stress at home.
Our own nine-week data on these credits supports a two-factor view of the region. South Africa and Nigeria move closely with US real yields, with a correlation of 0.78 in both cases. Angola, Ghana and Egypt carry more of their own risk. If the Fed's peak comes into view, the real-rate credits should lead. If risk appetite simply recovers, the high-beta credits will.
