Treasury and Bund yields touched multi-year highs before easing back, as weak US payrolls sharply reduced the odds of an October US Federal Reserve rate hike.

Global equities slipped slightly, with technology reaching a record high, while Europe lagged behind as the widening OAT–Bund spread weighed on French assets and the euro. The USD remained firm and gold eased.

Macroeconomics

Last week, US labour data disappointed, with non-farm payrolls (NFP) increasing by only 29,000, compared with 133,000 the previous month. In parallel, the unemployment rate increased slightly from 4.1% to 4.2%, while wage growth remained on a downward trend, rising by 3.0% y/y, compared with 3.1% y/y the previous month. Job creation remained highly volatile at sector level.

Regarding US economic activity, second-quarter GDP was revised upwards from 1.5% to 2.2% thanks to stronger domestic demand. Business confidence declined slightly on the ISM manufacturing index (at 54.5), while the manufacturing Purchasing Managers’ Index (PMI) increased slightly to 55.9. Both indices showed improved sentiment regarding new orders, but also further increases in selling prices.

August core personal consumption expenditure (PCE) inflation came in below expectations, increasing by 0.2% m/m and 3.0% y/y following technical revisions to the index calculation. Consumer confidence (the Conference Board Index) declined amid concerns about the economic outlook and unemployment. Inflation remained a concern, with six-month inflation expectations increasing again to 6.1% y/y.

In the eurozone, inflationary pressures increased due to higher energy prices. The September flash estimate showed a rise to 3.8% y/y after 3.2% y/y in August, and core inflation also accelerated to 2.5% y/y from 2.4% y/y. The manufacturing PMI increased by more than expected, reaching 52.9, compared with 52.7 the previous month. Sentiment on production and new orders improved, but costs rose, and selling prices also increased sharply. Eurozone consumer confidence declined in September, with growing concerns about the economic situation and inflation. As a result, retail sales contracted in Spain and France, while momentum remained positive in Germany.

In the UK, the manufacturing PMI increased slightly from the previous month, reaching 51.9. Details were mixed, with only a small rise in production and new orders from the previous month.

In Switzerland, inflation accelerated to 1.0% y/y, mainly due to energy prices. The KOF business index rebounded strongly, while the manufacturing PMI declined after hitting a high the previous month.

This week, central banks will continue to be the main focus, with the Federal Open Market Committee (FOMC) minutes and the European Central Bank’s (ECB) account of its latest meeting due to be released.

In the US, the September ISM services index is expected to remain relatively stable at 55.0, while the services PMI should confirm the rebound at a high level of 58.7, supported by improved sentiment regarding new business, although prices are still rising. The preliminary University of Michigan consumer sentiment index for October is expected to remain low at 47.7, compared with 48.1 in September, on the back of persistent inflation concerns.

In the eurozone, the final services PMI should confirm the rebound from the previous month, rising from 51.6 to 53.0, supported by resilient activity, while August retail sales are expected to be mixed.

In the UK, the final services PMI is expected to confirm the modest decline recorded in September, from 52.5 to 51.7, amid weaker domestic demand and exports, but with rising costs and prices.

Equities

Global equities registered modest losses (MSCI ACWI total return -0.7%) amid a data-heavy and rates-driven week. A weaker-than-expected US jobs report reframed the interest rate outlook and powered a late-week rally, partially offsetting the negative impact of a spike in long-term yields (US 10-year intra-week high of 5.34%) that weighed on sentiment for most of the week.

Beneath the surface, leadership continued to be narrow: the technology-heavy Nasdaq 100 (+0.7%) advanced to a new all-time high, led by renewed demand for AI-related companies, while US equities were stable overall (S&P 500 -0.2%). Europe lagged behind (STOXX Europe 600 -1.1%), with France (CAC 40 -2.1%) and Italy (FTSE MIB -2.7%) hardest hit on fiscal concerns. Almost all global sectors finished the week in negative territory except for technology (+1.4%, best performing) and energy (+0.3%).

A pivot to the week’s negative trend came on Friday with a weaker-than-expected US jobs report which was read as good news for equities, as odds of an October rate hike by the US Federal Reserve (Fed) collapsed. Oil prices also eased, relieving tensions further, as shipping flows through the Strait of Hormuz improved.

In the week ahead, the aforementioned macro forces and geopolitical developments are likely to remain the key focal points for investors ahead of the Q3 earnings season which should kick off in mid-October.

For now, oil and interest rates are outweighing strong earnings growth, but we see this as a temporary constraint rather than a change in trend.

Fixed income

Treasuries spent the week at levels last seen in 2002, with the 10-year touching 5.34% on Thursday morning and the 30-year 5.69% before giving back part of the rise by the end of the week. The 2-year peaked at 4.96% on Tuesday but swung to 4.70% by Friday afternoon, finishing the week at 4.82% as the probability of an October hike fell from 70% to below 20%. Inflation data was soft and payrolls gave the Fed room to breathe. Fed speakers also struck a more patient note during the week, with Vice Chair Jefferson saying there is no urgency to move rates again, and Kashkari commenting that he sees one more hike this year and another in 2027.

In Europe, 10-year Bunds touched 3.65%, their highest since 2009, but ended the week at 3.46%, even as euro area inflation surprised on the upside and Christine Lagarde told the European Parliament that second-round inflation effects did not yet call for more than a measured response.

France once again found itself in the spotlight, with 10-year OATs approaching 5%. The OAT–Bund spread is now at 150 basis points (bps), up from 85 bps at the start of September, a level only seen briefly during the euro crisis of 2011–12. We hold no direct French government debt exposure in our euro mandates and, despite current levels, are not inclined to initiate any, as we do not see the political will to tackle France’s deficit and debt load. Moody’s is set to review the French rating on the 23 October – the agency rates France at Aa3 with negative outlook, above S&P and Fitch at A+ stable – with all three ratings looking inappropriate given the country’s debt path, deficit, and political landscape. A note on Italy, which has drawn less attention: the spread over Bunds has also widened 40 bps since the start of September to 120 bps – the widest in more than 12 months.

Gilts were largely unchanged, even if the 30-year touched 6% for the first time since 1998 in a week when John Healey used his first party conference speech as chancellor to commit to the fiscal rules plus a buffer against uncertainty.

Spreads widened, slightly in investment grade (IG) at 5 bps, but more in high yield (HY) and emerging markets (EM) at 15 bps and in additional tier 1 bonds (AT1s) at 35 bps, where France has a 20% weighting in the index. Over the week, Treasuries lost 0.1%, IG 0.4%, HY 0.6%, AT1s 1.2% and EM 1.5%.

Bond yields hit multi-year highs before easing as hike expectations faded, but France took centre stage, with the OAT–Bund spread reaching a level last seen in the euro crisis.

Forex and Commodities

Last week, the EUR/USD fell to lows of just above 1.12, and the downward move has continued into Monday. OAT–Bund spreads have continued to widen at a faster pace and to a higher level than during the eurozone sovereign debt crisis. Front-end US yields remain high, and 2-year spreads are consistent with lower EUR/USD levels. There are few important data releases this week, and markets are likely to focus on spread developments, presenting ongoing downside risks for the EUR. 

The USD rose to levels of above 102 (DXY Index) last week on solid PCE data. The publication of lower-than-expected NFP labour market data did not weigh on the greenback, given the market’s focus on inflation. The main event this week is the publication of the FOMC’s minutes from its September meeting. The market is likely to focus on the emphasis on the inflation outlook and any apparent commitment towards further rate hikes. The wider backdrop for the USD remains conducive to further gains.

The EUR/CHF fell to levels of below 0.93, reflecting the OAT–Bund spread widening mentioned above. The EUR/CHF continues to trade as the best FX proxy for intra-eurozone spread widening, and this factor should dominate the EUR/CHF 2-year rate spread. There are few important data releases in the coming week and the EUR/CHF will continue to trade as a reflection of OAT movements.

Gold traded lower to levels of around USD 4,150 per oz. We note that gold’s decline is substantially less than we would have expected given the huge rise in both nominal and real interest rates. This apparent decorrelation implies that gold has only limited downside from current levels, and we note that the positioning on both ETF and futures has shown a lower sensitivity to recent price declines, suggesting a longer-term stance is being taken by investors. We maintain a broadly constructive position on gold over the medium term and anticipate that it should rise back to levels of above USD 5,000 per oz by Q1 2027.

The EUR/CHF has slipped below 0.93 and, with little data due this week, should keep tracking OAT moves as the best FX proxy for eurozone spread widening.

The opinions expressed herein are correct as at 5 October 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.