Monthly Market Perspective - October 2026

Throughout October, markets continued to navigate an environment dominated by rising government-bond yields, persistent geopolitical tensions and growing concerns over fiscal sustainability across major developed economies.
Investor attention gradually shifted from inflation alone toward the longer-term implications of elevated public spending, strategic competition between the United States and China, and the increasing financing needs associated with defence, infrastructure and technology investment.
Against this backdrop, the bond market remained the primary reference point for assessing the outlook for growth, inflation and financial stability.

During the month, markets increasingly recognised that central banks have limited ability to address the structural forces currently driving bond yields higher.

Federal Reserve

The Federal Reserve continues to maintain a restrictive policy stance, but investors increasingly view Treasury-market tensions as being driven by factors that extend beyond monetary policy alone.
The combination of resilient economic growth, inflation remaining above target and elevated financing needs continues to support historically high yield levels.
At the same time, market attention has shifted from the path of policy rates toward broader financial conditions and the market’s capacity to absorb both sovereign and corporate debt issuance.

European Central Bank

The ECB also continues to operate in a challenging environment, where the energy shock has yet to be fully absorbed and fiscal concerns are becoming increasingly important.
Markets do not expect imminent intervention from monetary authorities and continue to assume that the normalisation of inflation will take longer than previously anticipated.

During October, the narrative of investment-led growth became increasingly dominant.

United States

The US economy continues to benefit from strong nominal growth supported by technological investment, infrastructure spending and strategic competition with China.
This backdrop has reinforced a reflationary interpretation of market developments: inflation is no longer viewed solely as a consequence of energy-related disruptions, but also as the result of strong capital demand and economic expansion.
At the same time, the rapid growth in investment is increasing dependence on external financing, making the system more sensitive to higher funding costs.

Europe

Europe presents a more fragile picture.
Economic growth remains subdued, while energy-related pressures and growing fiscal imbalances in certain countries continue to represent a source of vulnerability for the region.

During the month, markets increasingly embraced the view that the strategic confrontation between the United States and China may evolve into a prolonged economic and technological Cold War.
The persistence of tensions in the Middle East and the growing importance of energy security have altered investor expectations, reducing confidence that the energy shock will prove temporary.

In this environment:

• investment in defence, technology and strategic infrastructure continues to rise;
• commodities retain a key strategic role;
• inflation may remain structurally higher for longer.

Markets are increasingly assessing a scenario in which nominal growth and inflation settle at levels above the averages observed over the previous decade.

October highlighted an important shift in market dynamics.

Fixed Income

After September’s significant sell-off, bond markets began to show initial signs of stabilisation.
Stronger auction demand and renewed institutional participation suggest that current yield levels are starting to attract investors.

However, underlying pressures remain significant:

• elevated fiscal deficits;
• a persistent energy shock;
• higher term premia;
• increasing political and fiscal uncertainty.

Against this backdrop, investors continue to favour:

• floating-rate securities;
• inflation-linked bonds;
• tactical exposure to the long end of the yield curve.
  

Equity

Equity markets initially remained resilient, supported by strong nominal growth and continued investment in artificial intelligence.
Later in the month, however, market behaviour became more risk-sensitive, contributing to the re-emergence of the traditional inverse correlation between equities and bonds.
The renewed preference for quality and defensive assets benefited sovereign bonds while weighing on riskier segments of the market.

One of the most significant developments during October was the growing scrutiny of the financial sustainability of the artificial-intelligence ecosystem.
Difficulties experienced by several companies involved in financing AI infrastructure highlighted the risks associated with business models that depend heavily on debt-funded growth.

Investor focus increasingly shifted toward:

• the sustainability of return on investment (ROI);
• rising financing costs;
• widening credit spreads within the technology sector.

While AI remains a major driver of growth, the market is entering a phase in which the ability to generate returns above the cost of capital is becoming increasingly important for valuations.

While previous months were primarily focused on the United States, October saw investor attention broaden to include Europe.
In the United States, debate continues to centre on debt sustainability and the relationship between nominal growth, inflation and the government’s financing costs.
In Europe, France emerged as the principal source of concern for bond investors.
Widening spreads versus German Bunds, political uncertainty and difficulties in establishing a credible fiscal-consolidation path have contributed to increased tension across European sovereign-debt markets.

More broadly, markets continue to focus on three possible paths toward debt stabilisation:

• stronger economic growth;
• persistently higher inflation;
• a return to fiscal austerity.

The growing perception is that, in the absence of credible policy action, markets themselves may impose tighter financial conditions.

October confirmed an environment in which:

• bond markets continue to drive the macroeconomic narrative;
• geopolitical tensions and strategic competition between major powers are increasingly influencing investor expectations;
• economic growth remains supported by investment, but sensitivity to funding costs is rising;
• the first signs of stress are emerging within the AI ecosystem and the corporate-credit market;
• public debt and fiscal discipline have become central concerns for both the United States and Europe.

In this environment, portfolio management requires selectivity, a strong focus on credit quality and a prudent approach to duration, while maintaining close attention to energy-market developments, fiscal policies and global financing conditions.