The allocation to global equities is reduced from overweight to neutral, while duration is moved from neutral to underweight in government bonds across global, Norwegian and Swedish markets. Money market exposure is increased from underweight to overweight. The changes follow a month in which long-term government bond yields continued to rise, central banks raised policy rates and signs of pressure began to emerge in credit markets.
The assessment comes from the October edition of the monthly allocation report from Storebrand AM's Tactical Allocation Team, led by Olav Chen, Head of Allocation and Global Fixed Income.
The House wobbles
Long-term US Treasury yields continued to rise in September, with the yield on 30-year Treasuries ending the month just above 5.6%, its highest level since 2002.
The rise continued despite bond-buying support from the US Treasury. Treasury Secretary Scott Bessent also declared “I am the House”, invoking the casino saying that “The House Always Wins”.
At the same time, the Federal Reserve raised rates in September for the first time since July 2023. Markets are pricing in a further 86 basis points of tightening over the next twelve months.
“Long-term yields continue to rise while central banks are raising policy rates. With the move now also beginning to spread into credit markets, we believe it is appropriate to reduce risk in the portfolios,” says Olav Chen, Head of Allocation and Global Fixed Income at Storebrand AM.
Credit markets begin to react
Equity markets have so far absorbed the rise in interest rates relatively well, partly because stronger economic growth and corporate earnings have supported the growth side of the higher-rate story. Credit markets, however, are beginning to show signs of pressure.
Credit spreads widened markedly towards the end of September, reaching their widest levels since the market turbulence at the end of March.
Pressure is also visible in European sovereign debt. The yield on 30-year French government bonds has risen to around 5.5%, close to comparable US levels, while risk premia on Spanish and Italian government debt have also increased.
The European Central Bank raised rates for the second time this year in September, with markets pricing in a further 76 basis points of tightening over the next twelve months. Despite the widening in spreads, Storebrand AM remains overall overweight in credit and corporate bonds.
Global equities reduced to neutral
Global equities, measured by MSCI World in local currency terms, fell almost 1% in September but remain close to record highs. The index is still up 13% year-to-date.
The growth outlook remains resilient and corporate earnings have been strong over the past two quarters. Storebrand AM is nevertheless becoming more cautious as yields continue to rise and has reduced global equities from overweight to neutral. Emerging markets, which remain around 10 percentage points ahead of developed markets year-to-date, are kept at overweight.
“Equities have so far taken rising rates largely in their stride, supported by growth and strong earnings. However, with yields continuing to climb and credit spreads beginning to widen, we believe the balance of risks now warrants less equity exposure,” says Chen.
Duration reduced across markets
Global government bonds fell 2% in September as long-term yields continued to rise. Storebrand AM has shortened duration and moved from neutral to underweight duration in global government bonds. The same change is being made in Norwegian and Swedish government bonds.
Norges Bank raised rates in September and revised its rate path higher, while Sweden's Riksbank left rates unchanged but signalled that an increase is likely ahead, most probably in November.
US-China truce extended
The September summit between Donald Trump and Xi Jinping produced no major breakthrough, but the economic truce between the US and China was extended.
The two sides agreed to reciprocal tariff reductions on selected goods, while broader tariffs and strategic technology restrictions remain largely in place.
Storebrand AM asset allocation – October 2026
- Global equities: Neutral (from overweight)
- Norwegian equities: Neutral (unchanged)
- Swedish equities: Neutral (unchanged)
- Emerging market equities: Overweight (unchanged)
- Global government bonds: Underweight duration (from neutral)
- Norwegian government bonds: Underweight duration (from neutral)
- Swedish government bonds: Underweight duration (from neutral)
- Credit and corporate bonds: Overweight (unchanged)
- Money market: Overweight (from underweight)