Thematic Research

Latest edition · October 5, 2026

26 10 05 Thematic Research What are the biggest market dislocations Henry Allen

Deutsche Bank highlights a growing dislocation where bond markets are pricing acute macro stress, fiscal risks, and sovereign contagion, while global equities and credit spreads remain remarkably complacent near record highs. Because above-target inflation restricts central bank easing, this divide is unsustainable and risk assets are vulnerable to mounting pressure.

A stark divergence has emerged across global markets: bond markets have experienced sharp sell-offs, pushing yields to multi-year highs and blowing out European sovereign spreads (notably Franco-German spreads widening by 32bps, the most since 1990). However, risk assets remain sanguine, with the S&P 500 within 1% and the STOXX 600 within 4% of record highs, VIX subdued, and corporate IG credit spreads contained at 101bps. Furthermore, commodity markets incorrectly price oil normalization despite the Strait of Hormuz remaining disrupted for over six months, and markets neglect second-round inflation effects. Unlike in the 2010s, persistent above-target inflation prevents central banks from pivoting dovishly. Historical precedent indicates that equities lag but eventually reprice down when structural financial stress endures.

Key takeaways from the latest edition

• 1.A severe disconnect has opened between bond and equity markets: bonds are pricing acute macro stress and sovereign contagion, while global equities remain near record highs.
• 2.European sovereign bond spreads experienced crisis-level widening last week (Franco-German 10yr widening 32bps), yet the STOXX 600 fell only 1.1% and corporate credit stayed calm.
• 3.Investors risk overestimating central bank dovishness because ongoing above-target inflation prevents central banks from cutting rates to alleviate financial stress.

What this series covers

• What are the biggest market dislocations? October 2026
• So what are some of the biggest market dislocations right now?
• Conclusion: Bonds and equities are pricing different regimes, but the ultimate resolution will be decided by whether this financial stress begins to slow the economy.

Edition archive

• 26 10 05 Thematic Research What are the biggest market dislocations Henry Allen

  October 5, 2026

• 26 09 28 Thematic Research The end of the safety net Life without the macroeconomic stabilisers Henry Allen

  September 28, 2026

• 26 09 25 DB Thematic Research Next week

  September 25, 2026

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  September 21, 2026

• Thematic Research The revenge of the supply side: A new economic regime

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• The revenge of the supply side A new economic regime

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