Monthly Market Report – September 2026

Fixed income came under pressure in September as a result of one of the largest increases in yield curves in recent years. This movement pushed yields to their highest levels and, consequently, fixed income recorded price declines throughout virtually the entire month.

At the end of September, US 2-year and 3-year benchmark yields stood at 4.88% and 4.99%, respectively. Yields on 5-year, 10-year and 30-year bonds were all above 5%, levels not seen for approximately two decades.

In Germany, the 10-year bond reached successive highs during much of the month, climbing to 3.64%, its highest level since September 2008. The 30-year bond followed a similar trajectory, reaching 3.93%, levels not seen since December 2009.

France was one of the fixed-income markets most affected by increased political and fiscal uncertainty. The yield on its 10-year bond reached 4.85%, its highest level since 2008, while the risk premium over Germany exceeded 120 basis points, reaching its highest level since 2012. Among the main drivers of movements in yield curves were changes in oil prices and the resulting increase in inflation expectations, factors that intensified pressure on central banks to maintain a restrictive monetary policy.

Brent prices and volatility remained elevated throughout September. The exchange of attacks between the US and Iran caused the price of a barrel of oil to move from $90.49 to $103.53.

During the first half of the month, oil prices rose as a result of the Houthi advance near the Bab el-Mandeb Strait and the shutdown of the Saudi East-West pipeline following an attack. Subsequently, prices moderated amid rumours of a possible meeting between the US and Iran, high levels of crude oil traffic through the Strait of Hormuz under US escort —which helped absorb some of the crude diverted from the pipeline— and the rapid repair of the pipeline, with approximately 50% of its capacity restored within a few days and 100% within around six weeks.

Although the war in the Persian Gulf continues, crude oil transportation has recovered much of its pre-conflict export levels. However, the most concerning factor currently lies in the price of diesel and other refined products. The destruction of refineries, both in Iran and in Europe as a consequence of the war between Russia and Ukraine, has reduced production capacity. This shortage of refined products is passed on to final prices and ultimately fuels inflationary pressures.

In this context, the Fed raised interest rates by 25 basis points, to 4.00%. Warsh also maintained a restrictive tone, helping to reinforce the institution's credibility. Following this increase, the market fully prices in one additional rate hike and two more during 2027, which would bring interest rates to 4.75% if these expectations materialise.

The ECB also raised interest rates by 25 basis points. The increase was accompanied by a more restrictive tone from Lagarde, who justified the decision on the basis of higher inflation forecasts —3.3% in August in the eurozone— and the risk of second-round effects. Economic growth also proved stronger than expected in the eurozone, allowing the ECB to continue tightening monetary policy without excessive concern about harming economic activity.

In equities, the US market continues to show very narrow market breadth. Although the index is trading close to record highs, a significant proportion of its constituent stocks are following the opposite trend. Furthermore, the effects of higher interest rates have not yet had a significant impact on equity markets. The so-called Magnificent Seven continue to act as the main catalysts for the US market, accounting for virtually all of its movement.

Despite this backdrop, the US stock market traded sideways throughout September. After four consecutive weeks of subdued performance, the S&P 500 closed the month virtually unchanged, with a decline of -0.45%, while its year-to-date return stood at +11.77% at the end of September.

In Europe, equities performed more negatively due to the lower weighting of technology stocks and greater energy dependence. Political and fiscal instability in France also contributed to the weaker performance of European stock markets. The Euro Stoxx 50 fell -2.35% in September, bringing its year-to-date return to +8.25%.

In the foreign exchange market, the euro depreciated against the US dollar by 2.48% during the month, moving from 1.1618 EUR/USD to 1.330 EUR/USD.