Risk assets rallied toward the end of the week as President Trump announced the U.S. and China have agreed upon the first steps to a trade deal while chances of a soft Brexit also increased. US domestic credit tightened by 5 bp as investors expected the new trade deal would lift the US economy out of the doldrums. US Treasury yields shot up as a result of the risk-on tone with the 10-year yield rising by 20 bp for the week while the Treasury curve steepened. Apart from market moves, the Fed also announced that it would start buying US T-Bills next week to further stabilize funding markets and steepen the Treasury curve. Canadian credit generally lagged the rally later in the week while Canadian government bond yields rose in line with Treasuries.
European credit outperformed as unexpected developments on Brexit negotiations surprised investors. Firstly, reports surfaced that PM Johnson and Irish representative Varadkar had a constructive meeting on sticky border points. Further, the European Council’s Tusk mentioned he received promising details from all sides, and that technical talks are taking place in Brussels ahead of the Brexit deadline of October 16th. European credit tightened by 10 bp while UK banks outperformed, tightening by up to 25 bp.