[MARKET ANALYSIS] Midterm reaction has largely unwound for fixed, with attention back on geopolitics and the session's docket

Fixed income was initially bullish as the US midterms pointed to a Democratic sweep, with both the House and Senate projected to have shifted blue. However, this then unwound to a degree, though USTs are back in the green once again. Specifically, the early-APAC projections showing Democrats flipping multiple major Senate races, including Texas, helped to lift USTs to a 106-30 peak, with gains of 15 ticks or so at best. Then, as Trump expressed an openness to working with the Democrats, some key local (PUC/PSC) results went in favour of Republicans and, more generally, on a broader fading of the initial Dem. reaction, with many commentators describing it as overdone, a pullback was seen, to a 106-18 overnight low but clear of the 106-12+ late-US base. As it stands, USTs are off that base and post gains of a handful of ticks, with geopolitics and the QRA in focus. From the Senate, we await Mississippi, which is currently too close to call and, as such, could take a week or so, and Alaska, which may take one to two weeks to resolve. Nonetheless, the Senate flip is cemented, irrespective of the outcome in those two races. As above, market attention is already turning back to the Middle East, given the potential for kinetic action by the US against Iran into/during the weekend. On the docket, we have a handful of data prints and the QRA, which may see an update to the long end and/or 20yr specifically. Amidst this, EGBs have been directionally in-fitting until the European morning at least. Bunds hit a 122.42 overnight low alongside USTs, before then rebounding modestly to gains of c. 10 ticks. However, while USTs remain bid, Bunds have slipped into the red once more and to a 122.29 session base. Seemingly hit by energy upside as focus returned to and remains on the Middle East. Additionally, the morning’s regional weather data turned colder once again, and the traditional haven narrative may be factoring in, as European equity futures (and since cash bourses) climbed. Gilts digested most of this at the open. Started the day lower by a handful of ticks, before lifting to an 86.13 peak with gains of about 20 ticks. Since, in line with USTs for the most part. UK specifics light.