Issues 2026
Doug Nolan
“Expect the unexpected” is just not going to cut it.
For 2026, I’m adopting “Expect the Unbelievable.”
Three weeks into the new year, markets hint at “unbelievable” possibilities.
January 20 – Bloomberg (Ruth Carson, Taiga Uranaka, Lisa Du, and Finbarr Flynn):
“The selling in Japan’s $7.6 trillion bond market began slowly, then seemed to hit all at once.
What started as an unremarkable day on Tokyo trading desks quickly morphed into what several market participants described as the most chaotic session in recent memory.
While concerns about Japan‘s fiscal position had been simmering for weeks, they suddenly boiled over on Tuesday afternoon with little warning — sending yields on some bonds to all-time highs.
The rout left some hedge funds rushing to unwind losing trades, pushed life insurers to dump bonds and caused at least one corporate bond investor to pull out of a multi-million dollar deal.
Even as traders struggled to pinpoint an immediate catalyst for the selloff, the overriding worry was clear: Prime Minister Sanae Takaichi’s plans to cut taxes and boost spending are raising doubts about the financial health of one of the world’s most indebted governments.
‘This is basically the market pricing in a Liz Truss moment in Japan,’ said Masahiko Loo, senior fixed-income strategist at State Street Investment Management.”
Sanae Takaichi and JGBs following in the footsteps of Liz Truss and the gilts market from 2022?
That’s one major predicament for Japan – and markets across the globe.
At upwards of $13 TN, outstanding Japanese government debt is about three-times the size of the UK’s.
Weighing in around 250% of GDP – and almost half owned by the BOJ – a Japanese bond crisis has unbelievable possibilities.
Thirty-year JGB yields surged 27 bps in wild Tuesday trading, to 3.85%, before reversing lower to end the week up 14 bps at 3.60%.
After trading Tuesday to the highest level since September 1997, 10-year JGB yields closed the week seven bps higher to 2.26% (up 19bps y-t-d).
Ten-year Treasury yields rose to a five-month high 4.30% in Tuesday trading (up 30bps from late-November lows).
When JGBs falter, it’s curious to watch the old bond vigilante fears set in.
Greek yields surged 18 bps in two sessions to 3.52%, the high back to April’s “liberation day” instability.
Interestingly, German (10yr) yields rose seven bps this week to 2.91%, a more than two-year high, and within only five bps of the highest yield since July 2011.
Swedish yields added five bps to 2.92%, within two basis points of highs since 2011.
Australian yields jumped 11 bps to 4.82%, only a couple bps from highs back to 2011. New Zealand 10-year yields surged 15 bps to 4.59%.
Worryingly, UK 10-year gilt yields jumped 11 bps this week to 4.51%.
January 23 – Bloomberg (James Hirai):
“Gilts are heading for their worst week since April as the return of political risk and economic data surprises in the UK cap a turbulent spell for global bond markets.
A meltdown in Japanese debt early in the week rattled markets, followed by escalating tensions over Greenland.
But as other bonds around the world recovered, gilts were hit by worries about the potential for a new leader to increase borrowing, and then took another knock Friday from data signaling a revival in the economy.”
The UK’s January Composite PMI index surged to a stronger-than-expected - and a 21-month high - 53.9.
Germany’s Composite PMI was reported at a stronger-than-expected 52.5, the second strongest reading in over two years.
While effects are uneven across regions, exceptionally loose global conditions are working their magic.
The Atlanta Fed GDPNow Forecast is up to 5.37%, following Q3’s upwardly revised 4.4% GDP growth.
Issue 2026: Overheating risks are high and rising.
Issue 2026: Powell Replacement.
Blackrock’s Rick Rieder as new Fed Chair?
FT: “BlackRock’s Rick Rieder Surges in Federal Reserve Chair Race.”
Unbelievable…
January 23 – Financial Times (Claire Jones, Lauren Fedor and Kate Duguid):
“BlackRock executive Rick Rieder has emerged as a leading contender in the race for Federal Reserve chair as Donald Trump’s decision on who to nominate to lead the world’s most important central bank looms.
Rieder’s odds on prediction site Polymarket have surged from 6% earlier this week to 34% as of Friday morning, as speculation mounts that the president will back a candidate with close links to Wall Street to replace Jay Powell when his term as chair ends in May…
Rieder — who Trump described… earlier this week as ‘very impressive’ — said after the Fed’s most recent rate cut that borrowing costs were ‘still too high for the housing market to [recover] its buoyancy’.
He added that small businesses and young households… ‘are still struggling’…
‘Rick is not an ideologue, he’s more pragmatic.
He’s more likely to be concerned with his legacy and the legacy of the Fed as an institution,’ said an executive at a large US asset manager.
‘I view Rick to be the best outcome.
He is the most market friendly.
He is the most independent and will be data driven’.”
January 17 – Bloomberg (Josh Wingrove, Saleha Mohsin, and Joshua Green):
“The candidacy of BlackRock’s Rick Rieder to be the next Federal Reserve chair has gained late momentum, people familiar… say, as President Donald Trump weighs congressional blowback in his bid to put a friendlier face at the head of the central bank.
Trump’s interview Thursday with Rieder went well, the people said…
The search is now a four-man race, some of the people said, among Rieder, National Economic Council Director Kevin Hassett, Fed Governor Christopher Waller and former governor Kevin Warsh…
Rieder has called the Fed’s independence ‘critical,’ but has also echoed Treasury Secretary Scott Bessent in saying the central bank could be more ‘innovative’ in how it uses its balance sheet.”
Since the FT’s Friday afternoon article, Polymarket odds have turned upside down – Rick Rieder 53% versus Kevin Warsh at 28% (unbelievable!).
I respect Warsh, with his independent and more traditional (i.e., smaller balance sheet) central banking perspective.
Meanwhile, with less than 10 months until midterms, the administration is keen to have Fed (and GSE!) balance sheet growth locked and loaded.
Rieder:
“Whoever ends up being the Fed chair, there’s so many innovative things… how to use the balance sheet, how to use liquidity, where the yield curve is.”
I doubt the President is all too enthused by Rick Rieder.
Secretary Bessent and others have surely conveyed that the Blackrock senior managing director is a strong market favorite.
And with markets vulnerable and Republicans one market accident away from a midterms wipeout, it seems reasonable enough that the President would bite the bullet on this one.
A deeply divided Fed is a key Issue 2026: Deeply unstable markets will only compound the problem, whether it’s Rieder or Warsh at the helm.
The rates market is pricing about two cuts (45bps) by year-end.
So long as the boom persists, the hawkish contingent will have none of that.
The new Fed Chair will come with a Trump mandate to cut rates.
I’ll assume the non-economist Rieder will have an especially challenging task of pushing through lower rates.
Issue 2026: QE and the Fed’s balance sheet.
Things turn unbelievably fascinating if the fledgling Rieder Fed confronts de-risking/deleveraging and market crisis – a scenario these days with uncomfortably elevated odds.
Markets would demand a big liquidity bailout to the tune of many hundreds of billions (for starters).
And Rick Reider would have his work cut out selling monster QE to the Committee, the American people, and global investors – especially ahead of unbelievably consequential midterm elections.
Time will be of the essence.
The QE number(s) will be unbelievably massive – and any Fed flinching could unleash unbelievable instability.
The podium will say “Federal Reserve,” but many folks will see and think Blackrock.
Potentially unbelievably messy.
Unbelievable to most, Silver ended the week at $103, with Gold just shy of $5,000.
Gold has jumped 15.5% in the initial three weeks of the year, adding to 2025’s spectacular 64.6% advance.
Unbelievably, Silver has jumped 44%, after last year’s 148%, with Platinum rising another 18.7%, following 2025’s 127%.
A Wednesday Fortune headline gets to the crux of an Issue 2026:
“Ray Dalio Warns that the Monetary Order is Breaking Down, Leaving us with a Terrible Choice: ‘Do Your Print Money or Let a Debt Crisis Happen.”
Trapped.
We’ll look back at the precious metals’ move as the signal that should have been heeded.
Poor Dalio got up on the wrong side of his comfy Davos hotel bed.
Fortune:
“‘Let’s Not be Naïve’: Ray Dalio Warns the Global Rules-Based Order is Already ‘Gone’, Toppled by America’s Debt.”
So many unbelievable headlines from Davos week; where to begin:
“Ray Dalio Sees Ongoing Diversification Away from U.S. Assets.”
“Trump Threats Sow Anxiety Among Europe’s Rich on Their U.S. Bets.”
“Dollar’s Worst Week Since May Comes with US ‘Policy Nightmare.”
An unbelievable Davos week is a harbinger of things to come.
An accelerating breakdown of the global order is one major Issue 2026.
January 22 – Financial Times (Paola Tamma, Barbara Moens and Christopher Miller):
“EU leaders have cautiously welcomed Donald Trump’s decision to drop his threat of tariffs against European allies and the apparent softening of his desire to seize Greenland, but they still voiced concern over relations with the US ahead of an emergency summit to discuss the issue…
‘We have learnt something in the past days and weeks,’ said Denmark’s Prime Minister Mette Frederiksen…
‘When Europe is not divided, when we stand together, and when we are clear and strong also in our willingness to stand for ourselves, the results will show’.”
January 22 – Bloomberg (Kate Sullivan and María Paula Mijares Torres):
“President Donald Trump vowed ‘big retaliation’ if European countries sell US assets in response to his tariff threats related to Greenland, adding pressure on them to stick with an emerging deal over the future of the island.
‘If they do, they do. But you know, if that would happen, there would be a big retaliation on our part,’ Trump said… ‘And we have all the cards’.”
We have “all the cards?” as previously asserted early in Chinese trade negotiations?
Unfortunately, we owe the world an unbelievable amount of “money.”
The Dollar Index was slammed 1.8% this week, the biggest hit since May trade negotiation instability.
Davos week had disconcerting similarities to April/May, along with February’s despicable Zelenskyy Oval Office beat down.
Festering for a year, crisis of confidence dynamics gained important momentum this week.
I’ll spare readers a more comprehensive analysis of what went down.
NYT: “Trump and ‘Taco’ Roils Davos.”
Bloomberg:
“How Trump’s Greenland Threat Revived the TACO Trade.”
Politico:
“Why 2026 May Bring More Tacos.”
CNN:
“Trump’s Latest TACO Moment Puts his Increasingly Erratic Temperament in the Spotlight.”
That was one unbelievable U-turn.
Alarming, ominous and all the rest.
And equities are well-conditioned to celebrate the power they hold over our power-hungry President.
Issues 2026 trepidation: The Game of Chicken.
Davos was a big win for European leadership and solidarity.
At this point, they’ve seen enough.
Red lines trampled on.
They held together firmly, and Trump had nowhere to go but to retreat.
The world has learned from the Chinese.
And with U.S. markets fragile and midterms looming, the President’s international bullying capacity has rapidly diminished.
And this has me worried.
More will stand up to him – and President Trump’s instinct is to lash out and double-down.
“Trump Says U.S. ‘Armada’ Is Heading to Iran, Raising Pressure on Regime.”
“Trump Administration Weighs Naval Blockage to Halt Cuban Oil Imports.”
“U.S. Seeks New Regime in Cuba by End of Year.”
That was one swift and surely infuriating comedown in Davos – right after the thrill, marvel, and exaltation of the Maduro operation.
With the world increasingly willing to stand one’s ground in 2026, our Commander and Chief’s predilection for wielding military power raises the risk of confrontation and geopolitical accidents.
January 23 – Reuters (Libby George and Trevor Hunnicutt):
“U.S. control of Venezuela's oil exports has ensnared barrels that had been servicing debt to China, lining up another potential showdown between the two superpowers that could further complicate the South American country’s path out of default.
Around a tenth of Venezuela’s $150 billion foreign debt pile is estimated to be loans from China that the OPEC member was paying in oil cargoes - until the U.S. seized Venezuelan President Nicolas Maduro earlier this month.”
Issue 2026: unbelievable discord between extreme and rising risk – and Halcyon market risk perceptions.
January 22 – Bloomberg (Rainier Harris):
“A key measure of credit risk reached the lowest level since the late 1990s on Thursday, after geopolitical tensions cooled and fears of a global economic slowdown abated.
Risk premiums on US investment-grade corporate bonds, or the extra yield above Treasuries that investors demand for owning high-quality company debt, shrank to just 71 bps…
That marks the lowest for the measure since 1998.”
January 23 – Axios (Madison Mills):
“Retail investor activity hit a new record high on a rolling monthly basis, JPMorgan says, as the group continues to buy the dip in the stock market.
Novice traders aren’t only dip buying.
They’re also staying invested, making them increasingly formidable participants that Wall Street can’t afford to ignore.
Retail investor dip buying on Tuesday is the third-largest trading day for the group in a year, as traders scooped up stocks while the Dow fell 900 points...
Trading volume on the platform Public surged 304% from this time last year as more retail investors turn to new platforms to make their trades.
Investors on Public used this latest dip to move cash on the sidelines into Big Tech names, Leif Abraham, Public co-CEO and co-founder, tells Axios.”
From the perspective of my analytical framework, there’s no conundrum.
Especially over the past year, unbelievable global liquidity overabundance has masked serious festering issues.
And unprecedented leveraged speculation remains at the epicenter of monetary disorder and market upside dislocation.
January 23 – Bloomberg (Brian Meehan):
“The Treasury basis trade is doing what it always does in calm markets: getting massive -- now up to a near-record $1.4 trillion.
Leveraged funds are parked in near-record net shorts in Treasury futures, and dealers are at all-time highs too as they take down long-duration Treasuries and hedge with contracts…”
January 19 – Bloomberg (Marcus Ashworth):
“Dave Ramsden, the Bank of England’s deputy governor for markets, has finally said the quiet bit out loud.
In a speech last week addressing massive hedge fund leverage in the UK gilt repurchase agreement market — where government debt is borrowed and loaned to ease liquidity — he threw down the gauntlet: ‘Something needs to be done’…
The central bank’s July 2025 Financial Stability Report highlighted that just five hedge funds are responsible for 90% of net gilt repo borrowing, with more than £100 billion ($134bn) of exposure as of the end of November.”
Issue 2026: the unwind of “basis trade” and speculative leverage would trigger an unbelievable change in market and economic backdrops.
A long list of festering issues, masked by historic liquidity overabundance, would be revealed.
Harsh realities will wallop market misperceptions.
Importantly, a tightening of liquidity conditions would have a momentous impact on the AI mania/arms race.
Tighter Credit conditions would propel the unfolding downturn in leveraged lending and “private Credit.”
Sinking stock prices would see a problematic “wealth effect” turnabout, halting a major driver of U.S. economic resilience.
And with speculative leverage having become integral to global market and economic booms, de-risking/deleveraging would be extraordinarily problematic globally.
Moreover, in the current environment, we definitely can’t take international crisis-response coordination for granted.
I anticipate an unbelievable year.
And I and so many others have difficulty believing anything our federal government tells us.
With less than 10 months until midterms, the administration will say and do anything.
I would expect the President to hold off on the Insurrection Act and other actions that might trigger more widespread social unrest and mayhem – but who knows.
Meanwhile, the winter storm taking hold across the country reminds us that odds favor weather mayhem and destruction.
And when it comes to unbelievable, I fear that in a crisis environment, we might be overwhelmed by AI generated misinformation and propaganda.
Of course, history’s most unbelievable Bubble could inflate through yet another year.
I wouldn’t bet on it.
Things got too crazy – late-cycle Credit and speculative “Terminal Phase” excess too intense and systematic.
Blind optimism took complete control.
As such, people today couldn’t be more unprepared.
Faith in Fed and Trump “puts” spurred “blowoff” excess in history’s greatest Bubble in leveraged speculation.
And Bubbles eventually burst.
Confidence in the Fed and Trump administration seemingly couldn’t be more fragile.
I’ve been amazed so far, but I’ll find it unbelievable if the leveraged speculating community doesn’t move to pare back risk.
There are too many things that can go wrong in 2026.
Bloomberg’s Erik Schatzker (1/21/26):
“Two days ago, Ken, we witnessed a disorderly – seemingly uncontrollable - selloff in the Japanese bond market…
It has been described as eerily similar to the UK’s 2022 gilt crisis.
Is there an implicit warning in that selloff for the U.S. Treasury bond market?”
Citadel’s Ken Griffin:
“I actually think there’s an explicit warning – that if your fiscal house is not in order, the bond vigilantes can come out and extract their price.
And what’s particularly troubling is that if you look at what happened in Japan – when bonds and stocks move together in prices then bonds are no longer a hedge for your equity portfolio.
And they lose a substantial part of what makes them so special in constructing a portfolio.
If U.S. Treasuries are viewed as being at risk - because the United States is not seen as being creditworthy – then bonds and stocks will move together in price and that will result in bonds having a much-higher demanded yield in the marketplace.
So, mortgage interest rates will be higher.
The cost for us to finance our deficits will be higher.
I think that what happened in Japan is a very important message to the House and to the Senate: you need to get our fiscal house in order.”
Schatzker:
“Liz Truss was playing with fire.
The Japanese just learned they’re playing with fire.
Is the United States – is President Trump - playing with fire?”
Griffin:
“Probably not yet.
The U.S. has so much wealth.
We can maintain this level of deficit spending for some period of time.
But the longer we wait to change direction, the more draconian the consequences will be of that change.”
Some will argue the President’s threats on Greenland, Denmark and our European allies were “no harm, no foul.”
Just Trumpian “art of the deal” antics.
Globally, most see a most flagrant foul not soon forgotten.
I can’t help but draw a connection between the administration’s tactics, a breakdown in the global order, an incipient crisis of confidence dynamics, and an impetus for sophisticated players to commence de-risking/deleveraging.
For Posterity:
CNN’s Jim Sciutto (1/19/26):
“Given where it already is, has President Trump already irreparably harmed, damaged the Transatlantic Alliance?”
Rasmus Jarlov – Member of Danish Parliament and Defense Committee Chair:
“It will be quite difficult to return to the levels of trust we had before, because it is a shock that the U.S.A. has turned on us that quickly and that aggressively.
So, it is dangerous for us to be as dependent on the Americans as we have been before, and of course we have to take [that] into account in the future.
But it’s not too late to work together to save NATO, to find our enemies, free the West from terrorism and threats.
We can still do that, and we want to do that.”
Sciutto:
“As you know, President Trump is threatening your country and other countries in Europe with economic penalties – these new tariffs.
But he’s also continuing to refuse to rule out using military force to take Greenland.
Just today, when asked by NBC if he would use force, he said simply ‘no comment.’
You are Chair of Denmark’s Defense Committee.
You are responsible in part for helping design the defense of Denmark.
Do you consider that a genuine possibility – that we might deploy troops there to in effect force Denmark out of Greenland?”
Jarlov:
“I have to say at this point, with the very aggressive statements also made today about not wanting to work only for peace and linking that to Greenland, that is quite threatening and we would be reckless if we didn’t take that seriously.
We know you so well in the United States.
We have been your friend for 250 years.
And this is not you.
This is not a country that attacks and threatens peaceful friendly neighbors that have done absolutely nothing to you and don’t pose a threat.
You’re a country that stands for freedom.
You’re not a country that subjugates neighbors and goes on wars of conquest to take land from other countries.
You work together with your allies.
You are a country that can be trusted – not one that suddenly turns on its allies and runs away from treaties and says all the sudden that there’s no document that proves that Greenland belongs to Denmark after six and a half centuries of ownership.
This is not you, and we don’t recognize you at the moment.
And we have to get away from this path because there is no way that we can give in to a demand of handing over land and people that does not want to be part of the United States.
We can’t do it, and from there it’s up to the US how much of a confrontation this is going to turn into.
We don’t want a confrontation.
We want to work with you, and we want to give you the access to Greenland that you need.
But we can never give in to a demand that we should just hand over land and people that the United States has absolutely no right to.”
Sciutto:
“But what if this is America today under Trump, regardless of its history – and by the way, he’s President for three more years and has other leverage to hand – for instance, he could, and he’s threatened before, to remove troops from Europe.
He’s threatened before to stop all U.S. aid to Ukraine.
How far is Denmark and how far are your allies in Europe willing to go to defend this red line you’re setting?”
Jarlov:
“We will of course defend Greenland if there is an invasion by American troops. It would be a war. And we would be fighting against each other. We know that the Americans are stronger than us. You have a much stronger military than ours. But it is our duty to defend our land and our people. And the 57,000 Danish citizens that live in Greenland that have made it absolutely crystal clear that they don’t want to be taken by the United States. We have an obligation to fight for those people and our forces will do that. But it would be a disaster, also for the United States. We know this is not you. It’s not who you are. But even for the very, very few people in the United States that don’t care about what is right and wrong – that you can’t just take your neighbor’s land just because you think you need it – even for those people this is a very, very bad idea. The business case of taking Greenland is terrible because you already have access to it. And if you annexed it, the only thing you would get [are] more expenses. You would have to run the country. You would have a population that would never recognize that you own their land. And you would have to do without all the things that Denmark pays for today. We’re paying a lot of money for Greenland. We’re not making any money on it. We’re paying a lot of money for defense. We have invested about $14 billion in the past two years in drones, ships, satellites, troops on the ground, helicopters, everything else that you won’t [have] up there. Why would you want to take over that expense? Why not work together with us when the door is wide open. You have access to Greenland. There’s no expiry date to that access. And you can put as many troops up there as you want. But Greenland is not threatened by the Chinese or Russians. We have kept them out. And they’re in no way about to take over the country.”
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