There were no rate decisions last week, but the Fed and the ECB released the minutes of their latest monetary policy meetings, and the BoE published its quarterly Financial Stability Report.

In the US, the September FOMC minutes revealed a divided committee balancing persistent inflation risks with signs of a weakening labor market. Inflation hawks pointed to tariff-driven price pressures, while doves emphasized slowing job growth and productivity gains. Although some officials would have preferred to keep rates on hold, most judged that further policy easing would likely be appropriate before year-end. Markets agree: Future markets assign a 98% probability of a rate cut in October and 92% for another in December. Despite the dovish bias, participants stressed caution, noting that recent data show only a gradual cooling in labor conditions.

On this of the Atlantic, ECB minutes revealed that policymakers had debated another rate cut in September but opted to maintain the deposit rate at 2%, citing two-sided risks to inflation and high uncertainty from global trade and geopolitical tensions. While some members argued for additional easing to protect the inflation target, most favored patience, highlighting resilient growth and solid labor markets. Staff projections foresee inflation dipping to 1.7% in 2026 before returning close to target. Officials also warned of stretched asset valuations and a stronger euro weighing on inflation expectations.

In the UK, the BoE warned, in its latest Financial Stability Report, of elevated global asset prices, particularly in AI-linked equities, raising the risk of a sharp market correction. The BoE highlighted potential bottlenecks in AI-related supply chains and pledged further analysis of sector-specific financial risks.

In Japan, the unexpected election results and prospects of Abenomics-like policies led future markets to reassess and lower rate hike prospects form the BoJ. Future markets now assign more probability to a status quo than to a rate hike by the end of the year.

Credit spreads widened notably risky segments after renewed US-China trade tensions sparked a broad global sell-off. Prior, sentiment was already weighed down by France’s political volatility, mounting stress in the global chemical sector, and contagion fears following the collapse of First Brands, a U.S. auto-components importer. The bankruptcy was driven partly from fraudulent accounting and partly by the firm’s aggressive use of factoring—selling receivables to banks for upfront cash, sometimes without full disclosure.

Market pressure on EUR high yield chemicals intensified after Brazil’s Braskem appointed a debt advisor to explore “capital structure optimization,” a move widely interpreted as a potential prelude to debt restructuring.

In contrast, investment-grade segments benefited from the decline in core yields. The Vanguard USD Corporate Bond ETF rose +0.2%, and the iShares Core Euro IG Corporate Bond ETF gained +0.3%, supported by lower U.S. Treasury and German Bund yields, despite wider credit spreads.

Risky segments underperformed: USD high yield lost 1.1% and EUR high yield –1.0%, with spreads widening sharply from very tight levels.

Elevated volatility could persist in the coming weeks as investors grapple with the looming U.S. government shutdown, renewed tariff threats, and persistent fiscal uncertainty in France.