What are the biggest market dislocations? October 2026

We wrote last month that rates markets didn't reflect the inflationary pressures ahead, and warned that absent a fall in inflation the pressure on rates would continue. Since then there has been a major bond sell-off alongside clear signs of broader stress: European sovereign bond spreads have widened significantly, investors are pricing in faster rate hikes, and Brent crude has stayed above $100/bbl. Yet global equities remain far from correction territory, the VIX is subdued, credit spreads are nowhere near recent highs, and commodity curves even price an oil normalization. Markets are therefore pricing the symptoms of a new regime (multi-decade high yields, wider sovereign spreads) without pricing the logical consequences (lower growth, higher default risk). Five key dislocations are highlighted: (1) last week the Franco-German 10yr spread widened 32bps, the most in Bloomberg data back to 1990, and the Italian spread 23bps, yet the STOXX 600 is still only 4% beneath its record high