This week, investors reassessed the cost and expected returns of AI infrastructure as technology shares sold off and US Treasuries rallied. At the same time, France’s 10-year yield rose above 5%, putting its fiscal outlook and banks’ sovereign holdings under scrutiny.

The market moves came amid diverging policy pressures, with Indonesia combining liquidity support and currency measures while the Philippines raised rates and Türkiye cut. For banks, scrutiny of AI and private-credit exposures coincided with the OCC’s GENIUS Act rules, the EU’s securitisation reforms and the expansion of Singapore-led BLOOM for cross-border digital money settlement.

Read more on the week's key developments:

1. AI sell-off puts investment returns and credit access under scrutiny

A sharp sell-off in AI-linked shares put the economics of the infrastructure build-out under scrutiny, as investors weighed rising capital spending against cash generation and expected returns. The pullback intensified after Meta raised its 2026 capital-spending forecast to $135 billion–$145 billion and reported negative free cash flow of $2.12 billion for the third quarter. Meta fell 7% on 22 October, the Nasdaq Composite dropped 2.6% and the Philadelphia Semiconductor Index slid 6.7%. Investors also sought safety in US Treasuries, sending the 10-year yield down 19.3 basis points to 4.953%, its biggest one-day fall since March 2023.

The funding picture differs across the AI infrastructure chain. CoreWeave’s 2031 bond yield briefly topped 16% on 15 October as investors questioned its debt-funded data centre expansion. On 25 October, Elon Musk said SpaceX had closed $40 billion in callable debt financing for GPU purchases, citing its investment-grade status and revenue from Starlink and launch services. Tesla, meanwhile, cut its 2026 capital-spending outlook to about $20 billion from more than $25 billion and reported $1.53 billion in third-quarter free cash flow. As Alphabet, Microsoft and Amazon report this week, markets will look for evidence that cloud growth and investment plans can support the scale of the build-out.

2. French borrowing costs widen sovereign risk premium

France’s 10-year government bond yield briefly reached 5.1415% on 22 October, its highest since July 2002, while the spread over German Bunds widened to 177.7 basis points, its broadest since November 2011. Investors remained concerned about public finances and political uncertainty. The bond sell-off continued even as INSEE’s manufacturing business-climate index rose four points to 105 in October, led in part by stronger order-book readings in transport equipment.

Analyst estimates from September 2025 put direct sovereign exposures at large French banks, excluding La Banque Postale, at 15%–30% of CET1 capital. The International Monetary Fund says French banks’ domestic sovereign holdings are below those of European peers, with most government bonds held to maturity; only about 10% of domestic sovereign bonds held by major banks are marked to market. French banks are among the EU’s largest wholesale debt issuers, leaving refinancing costs exposed to a sustained rise in yields.

3. OCC finalises GENIUS Act rules for US stablecoins

On 21 October, the US Office of the Comptroller of the Currency (OCC) finalised rules implementing the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. Enacted in July 2025, the law created a federal framework for payment stablecoins. The OCC rules cover issuers and activities under its jurisdiction, including reserves, redemption, capital, risk management, reporting and custody. They take effect on 18 January 2027.

The law bars stablecoin issuers from paying interest or yield solely for holding the coins. The OCC dropped a proposed presumption against some rewards offered through third-party platforms, leaving those arrangements to be assessed on their specific facts. Banking groups have argued that such rewards could compete with bank deposits and raise funding costs; the final rule leaves that dispute open as issuers and platforms prepare for the new regime.

4. Barclays reports GBP 15.0 billion in private-credit exposure amid PRA scrutiny

At its third-quarter results on 22 October, Barclays said its private-credit exposure was GBP 15.0 billion ($20.0 billion), most of it held in the banking book. The disclosure followed a 19 October Financial Times report that the Prudential Regulation Authority was examining a complaint from an insider about Barclays’ treatment of total-return swaps linked to illiquid private-credit loans. The reported concern was that booking the swaps in the trading book rather than the banking book could reduce the capital required against the positions. Barclays said its treatment complied with accounting and regulatory capital requirements.

Barclays put the mark-to-market value of the relevant swaps at GBP 0.3 billion ($0.4 billion), against GBP 1.5 billion ($2.0 billion) in underlying notional assets. Bank of England analysis cited by Parliament estimated that UK non-financial companies had close to GBP 100 billion ($134 billion) in private-credit arrangements, of which about GBP 80 billion ($107 billion) was drawn, equivalent to around 5% of corporate debt. Banks are linked to this market through direct lending, fund financing and derivatives.

5. BOJ says banks can withstand AI-related shock but flags NBFI links

The Bank of Japan’s 23 October Financial System Report said Japanese banks had sufficient capital and stable funding to withstand a combined stress scenario involving lower expected returns on AI investment, higher interest rates and rising oil prices. It warned, however, that portfolio adjustments by foreign non-bank financial intermediaries (NBFIs) could amplify market shocks and transmit them to Japan.

The BOJ’s broad measure of Japanese banks’ loans and investments to foreign NBFIs reached JPY 126.0 trillion ($775.0 billion) in June 2026, up from JPY 8.0 trillion ($80.1 billion) in March 2008. Separately, at end-March 2026, lending to foreign funds and data centres accounted for 9% and 3%, respectively, of the three major banks’ overseas lending. The BOJ identified both as focus areas because changes in asset values or technology could weaken borrowers’ ability to repay.

6. EU agrees changes to securitisation framework

The Council of the European Union and the European Parliament reached a provisional agreement on 21 October to revise the bloc’s securitisation framework. The agreement introduces a new “resilient” category, strengthens the existing simple, transparent and standardised (STS) framework and adjusts prudential treatment to make capital requirements more risk-sensitive. The package still needs to complete the formal adoption process.

The revision updates rules that have applied since 2019, including requirements on due diligence, transparency and risk retention. The European market had EUR 1.3 trillion ($1.5 trillion) of securitised products outstanding at the end of the second quarter of 2026, including collateralised loan obligations. For banks, the revised capital treatment could change the economics of originating, holding or transferring eligible assets; the market’s scale makes the final rules relevant to both bank balance sheets and investor demand.

7. Bank Indonesia eases reserve requirements as MSCI pressure persists

Bank Indonesia held its benchmark rate at 5.75% on 21 October, raised its deposit facility rate by 25 basis points to 5.00% and announced phased reserve-requirement cuts. Conventional commercial banks’ requirements will fall from 9% to 8% on 1 November, then to 7% on 1 December; Islamic banks’ will fall from 7.5% to 6.5%, then to 5.5%. The central bank also expanded foreign-exchange hedging incentives. Separately, it will lower the Macroprudential Liquidity Incentive cap from 6% to 5% of third-party funds, effective 1 December.

The policy mix came as the rupiah faced pressure and investors reacted to MSCI’s proposal to reclassify Indonesia from emerging-market to standalone status, citing concerns over market transparency and investability. The warning contributed to a sharp equity sell-off; Goldman Sachs estimated a full removal could prompt $5.6 billion in passive outflows. Bank Indonesia reported overall net portfolio inflows of $660 million in the first 19 days of October, after an $80 million outflow in the third quarter. Inflows into central-bank securities and government bonds offset continued equity outflows. The reserve cuts are intended to support bank liquidity, while the higher deposit rate and expanded hedging incentives are aimed at supporting the rupiah.

8. Google outage tests oversight of critical cloud providers

A power failure in Google Cloud’s London region on 20 October disrupted services at Revolut, Lloyds and HSBC, bringing banks’ reliance on shared cloud infrastructure into focus. Revolut said customers’ money and data were safe and apologised; Lloyds said its app was operational again, while HSBC acknowledged access problems for some customers. The European Banking Authority contacted Google, and the UK Financial Conduct Authority also engaged with the provider.

The UK began direct oversight of designated critical third parties, including Google Cloud, on 13 July under the Bank of England, Prudential Regulation Authority and FCA. The EU’s Digital Operational Resilience Act provides a parallel framework. The Treasury Committee has asked UK regulators how quickly they were alerted, how many firms and customers were affected, and whether customers suffered financial harm. It requested an initial response by 4 November and a full response by 20 January 2027. Banks remain responsible for service continuity, including their own contingency arrangements.

9. Malaysia and Thailand join Singapore’s BLOOM settlement initiative

The Monetary Authority of Singapore said on 23 October that Bank Negara Malaysia and the Bank of Thailand had joined BLOOM as policymaker members, bringing the central-bank group to three. Launched on 16 October 2025, the initiative’s industry and multilateral roster has grown from 16 to 25 organisations. It now includes banks such as DBS, JPMorgan, Maybank and Standard Chartered, payment networks Visa and Mastercard, and digital-asset firms including Circle and Ripple. BLOOM builds on MAS’s earlier Project Orchid work on digital money.

Participants are developing common approaches for accepting, exchanging and settling tokenised deposits and regulated stablecoins across networks and jurisdictions, including identity checks and sanctions controls. MAS identifies wholesale payments, corporate treasury and trade finance as use cases, and says shared commercial and operating arrangements could reduce the need for banks to establish separate arrangements for every market and counterparty. This puts BLOOM in a different lane from Project Nexus, which is moving toward live implementation to connect national instant-payment systems for retail transfers. The test for BLOOM will be whether common arrangements make digital-money settlement workable across institutions and borders.

10. Philippine rate hike contrasts with Türkiye’s first cut in months

The Bangko Sentral ng Pilipinas (BSP) raised its target reverse repurchase rate by 50 basis points to 5.50% on 22 October, double the increase expected by all 27 economists in a Reuters poll and its fourth consecutive hike. September inflation accelerated to 7.2% from 6.1% in August, while peso weakness added to imported fuel-cost pressures. The BSP kept its 2026 inflation forecast at 6.1% but raised its 2027 forecast to 6.0% from 5.4%, citing global oil prices and El Niño risks. It said it remained open to further increases.

Türkiye’s central bank cut its one-week repo rate by 100 basis points to 36% on 22 October, after holding it at 37% for five consecutive meetings. September inflation eased to 29.73% from 31.51% in August, falling below 30% for the first time since November 2021. The central bank pointed to weak domestic demand and a continued decline in underlying inflation, while warning that elevated energy prices remained an upside risk. It said future cuts would depend on the inflation outlook.

What to watch

Central-bank decisions will set the policy backdrop. The Federal Reserve meets on 27–28 October, the European Central Bank on 28–29 October and the Bank of Japan on 29–30 October. The Bank of Canada, Reserve Bank of New Zealand and Bank of Thailand also announce policy decisions on 28 October.

In the United States, third-quarter GDP and September personal consumption expenditures inflation are due on 29 October. Alphabet and Microsoft report on 28 October, followed by Amazon on 29 October. Markets will assess how policymakers read inflation and growth, and whether the technology companies’ cloud revenue and investment plans address questions about returns from the AI build-out.

In Asia, South Korea’s third-quarter GDP and China’s September industrial profit data are due on 27 October. China’s party plenum runs from 26 to 29 October, while official manufacturing and non-manufacturing PMIs are due on 31 October. The data will provide fresh readings on regional activity and earnings.

The UK government will present its Budget on 28 October, with borrowing plans and fiscal measures under scrutiny. In Europe, euro-area third-quarter GDP and September unemployment data are due on 30 October, offering fresh readings on activity and the labour market.