Month: December 2025

Reflections on Gold as We Approach 2026

I started writing this blog in 2020 to share my views on macroeconomics and long-cycle investing. My very first piece was a strong call on gold. At the time, I argued that gold was likely to be one of the best investment opportunities of the coming decade. The framework was admittedly abstract: deeply negative real rates, de-globalization pressures, high debt and low growth as the post-pandemic equilibrium, persistent monetary accommodation, and a rising inflationary undercurrent. History suggested that under such conditions, gold will ultimately enter a super-cycle.

Five years later, gold’s price path has unfolded broadly along that thesis. Looking back, the feeling is less triumph than humility. The original conviction was built on a conceptual framework, not on any concrete forecast of events. While extreme real rate dynamics were part of the story and largely within expectations, the actual path the world took was far more dramatic than anyone could have sketched out. We witnessed a major policy misjudgment by the Fed that allowed inflation to surge to 9.1%. We saw aggressive tightening burst the innovation-era bubble, wiping out fragile startups and triggering a regional banking crisis.

My deepest conviction back then, however, went beyond gold as a short-term hedge or even a medium-term real-rate proxy. At its core, gold is a long-term measure of dollar credibility, the monetary reference point against which the dominant country of a Kondratiev cycle is ultimately judged. I believed that as contradictions accumulated, some form of systemic re-ordering was inevitable. What I could not have imagined was how explicitly that process would reveal itself.

The Russia-Ukraine war in 2022, followed by unprecedented financial sanctions and the freezing of sovereign reserves, delivered a profound shock to the notion of dollar neutrality. That moment marked the opening act of de-dollarization—not as ideology, but as risk management. Central banks stepped in as structural buyers of gold. By 2025, escalating tariff conflicts, violent swings in the Treasury market, and the erosion of Treasuries’ safe-haven status further reinforced a simple conclusion: gold had become the only uncontested refuge, effectively replacing U.S. government bonds in the global safety hierarchy.

Over the past five years, maintaining a meaningful allocation to gold has been both intellectually validating and financially rewarding. And as we stand here today, my bullish view on gold remains firmly intact. In what follows, I want to revisit the logic, updated with lived history, and lay out why the forces driving gold higher continue to build as we look toward 2026.

I believe gold is being driven by three distinct forces. The two dominant ones are de-dollarization and safe-haven substitution, while currency debasement, as captured by the real-rate framework, plays a secondary role. In other words, as long as de-dollarization and the repricing of safe assets remain intact, fluctuations in real rates—no matter how dramatic—may create volatility, but are unlikely to alter gold’s long-term upward trajectory.

The first, and by far the most dominant factor, is de-dollarization.

The traditional debasement framework for gold anchored in real rates worked remarkably well before 2022. That relationship, however, began to break down in 2022, when gold sharply disconnected from U.S. real yields under the influence of a new force: de-dollarization.

That year marked a turning point. Western powers froze roughly $300 billion of the Russian central bank’s assets, nearly half of its foreign reserves. While official communication at the time emphasized respect for international law and framed the action as exceptional, very few emerging-market central banks took comfort in those assurances. Instead, many responded by reducing exposure to U.S. Treasuries and reallocating reserves toward gold as a form of self-insurance.

That reaction has since proven prescient. More recently, German Chancellor Merz openly advocated using frozen Russian central bank assets to help finance aid to Ukraine—underscoring that such actions are no longer viewed as unthinkable, but as policy options. History offers a stark warning here. Countries whose central bank assets have been frozen—such as Iran, Venezuela, North Korea, Afghanistan, and Libya—have almost never recovered economically. Iraq remains the lone exception, and only after a complete regime change, with fragility still lingering. In other words, for policymakers, this is a risk that must be avoided at all costs. Fool me once, shame on you. Fool me twice, shame on me.

The consequence has been a structural shift in global reserve management. Central banks have simultaneously increased gold holdings while reducing allocations to U.S. Treasuries. In early September this year, when gold reached $3,500 per ounce, it overtook U.S. Treasuries in central bank reserve composition. At today’s price of around $4,500 per ounce, gold accounts for approximately 27% of global central bank reserves, compared with 23% for U.S. Treasuries.

For perspective, in 1970, just before the Nixon Shock ended the gold standard, gold’s share of global reserves stood at roughly 40%. That historical benchmark suggests that, even after the rally we have already seen, the reallocation process may still have meaningful room to run.

What to watch in 2026 are, India has indicated an intention to raise gold’s share of reserves toward 20%, from roughly 16% today. Poland has articulated a target of lifting gold to around 30% of reserves, up from approximately 26%. Turkey continues to view gold as a hedge against persistent currency depreciation and inflation risks. Korea, after more than a decade without increasing gold holdings, has publicly stated that it is considering renewed accumulation. Brazil, where gold still accounts for only about 6% of reserves, has been a notable buyer in recent quarters, highlighting the scope for further diversification.

Second, safe-haven substitution has become a defining feature of this cycle.

For much of the post-2001 period, asset allocation was shaped by a combination of low interest rates, subdued inflation, excess liquidity, and a persistent global savings glut. These forces compressed risk premia across asset classes and supported stable diversification between bonds and equities. Over the past two years, however, these conditions have steadily eroded—and under the current policy trajectory, they are likely to reverse more forcefully and persistently.

The clearest empirical expression of this shift has been the flip, and subsequent rise, in bond–equity return correlations from structurally negative to decisively positive. In earlier regimes, bonds reliably offset equity drawdowns as negative shocks were translated into easier monetary policy and lower yields. As inflation constraints, fiscal considerations, and supply-side pressures have increasingly limited central banks’ ability to respond symmetrically, that reaction function has weakened. When adverse shocks no longer guarantee falling rates, bonds lose their natural hedging role.

As a result, the traditional 60/40 portfolio is no longer “naturally” diversified. Investors are being forced to look beyond duration for risk mitigation, creating renewed demand for alternative diversifiers—most notably hard commodities, and gold in particular.

That abstraction turned concrete particularly following the April tariff announcements. Rather than triggering the familiar flight into duration, the Treasury market experienced sharp volatility and poor hedging performance. As showed in below, since April, correlations between U.S. Treasury prices and other safe assets, as well as with uncertainty indicators, fell toward zero. This decoupling suggests that Treasuries’ safe-haven properties became more state-contingent, rather than operating as a general absorber of risk. Importantly, this shift appears specific to U.S. assets. Other core bond markets did not exhibit comparable changes. In particular, German Bunds continued to display—and in some cases strengthened—their positive correlation with measures of global risk aversion, underscoring that the episode was not a generalized breakdown of sovereign bond hedging properties.

This results in a vacuum at the top of the safe-haven hierarchy. Capital filled that vacuum decisively. Flows rotated toward gold as a functional hedge. In fact, if we look at a longer period of time in history, safe-haven demand has been allocated across a small set of assets—U.S. Treasuries, the U.S. dollar, and gold, and they substitute for one another at different point in time. At various points in history, the U.S. dollar, U.S. Treasuries, and gold have each occupied the top position in the safety hierarchy. Crucially, substitution tends to occur when one asset enters a visible, long-duration decline—whether through inflation, fiscal erosion, policy constraints, or credibility loss.

Gold’s re-emergence fits squarely within that pattern. Unlike Treasuries, it does not rely on policy easing, fiscal capacity, or foreign confidence of the U.S. to perform its role. As bonds increasingly reflect growth, inflation, and supply risks rather than offset them, gold has been repriced as the residual safe haven—the asset investors turn to when conditional hedges cease to be dependable.

Thirdly, currency debasement, as captured by the real-rate framework, continues to play a persistent but secondary role.

Over long horizons, gold has exhibited a robust inverse relationship with real interest rates, reflecting its function as a non-yielding asset whose opportunity cost is determined by inflation-adjusted returns on cash and sovereign debt. Periods of declining or deeply negative real rates have historically coincided with rising gold prices, as monetary accommodation and inflationary pressures erode the real purchasing power of fiat currencies.

Currency debasement does not require CPI-style inflation. What matters is the erosion of real purchasing power embedded in the risk-free rate. Prior to the GFC, falling real rates were typically associated with physical inflation. Post-GFC, debasement increasingly manifested within the financial system itself—through rising equity and bond prices—rather than through broad-based consumer inflation. From the perspective of real rates, the transmission channel differed, but the implication for gold was the same.

What I would particularly emphasize is the risk of over-relying on the real-rate framework and treating central bank policy as the sole market driver. While real rates remain an important explanatory variable, the current gold market is increasingly shaped by who the marginal buyers and sellers are, and by the nature of their demand.

On the demand side, today’s dominant buyers are central banks as I mentioned in the first part. This includes oil-exporting countries recycling surplus revenues, as well as Asian and Middle Eastern central banks actively increasing physical gold holdings. Crucially, much of this demand is for physical delivery. Gold is purchased, transported, and stored domestically, effectively removed from the tradable float. This creates a form of rigid, cost-insensitive demand that steadily tightens available supply.

On the supply and positioning side, the remaining marginal sellers are disproportionately model-driven investors. Many systematic and algorithmic strategies continue to anchor their positioning to the real-rate framework, expressing short exposure on the premise that sustained high policy rates should suppress gold prices. This creates an asymmetry. As rates rise, these strategies expect headwinds for gold; yet higher rates simultaneously exacerbate concerns around the U.S. fiscal sustainability and balance sheet. Under those conditions, gold can behave in a counterintuitive manner—rising alongside higher rates as it is increasingly priced against sovereign risk rather than monetary accommodation.

In economic terms, this dynamic resembles a Giffen-type behavior: higher “costs” in the form of rising interest rates do not reduce demand, but instead reinforce it by intensifying concerns about the underlying asset backing the system. Each price correction driven by model-based selling has tended to encounter inelastic physical demand, while also forcing short-covering as positions move against expectations. The result is a reflexive process in which pullbacks reduce, rather than reset, upside pressure.

Taken together, this shift in market structure helps explain why gold has remained resilient in an environment that traditional models would have deemed unfavorable. Real rates still matter, but they no longer operate in a vacuum. When sovereign demand dominates the bid and physical supply is progressively withdrawn from circulation, price dynamics become less sensitive to cyclical policy variables and more responsive to structural considerations around credibility, reserves, and balance-sheet risk.

Finally, it is worth emphasizing that gold’s price behavior is inherently multi-layered, reflecting the interaction of several distinct trading logics rather than a single dominant factor.

Over the long run, gold is anchored by structural forces—reserve diversification, safe-haven substitution, and currency debasement. Over shorter horizons, however, its price can be influenced by overlapping and sometimes conflicting narratives, each associated with a different investor base and use case.

In recent months, one such layer has become increasingly visible. Beyond its monetary and safe-haven roles, gold remains part of the broader precious metals complex, which has been affected by renewed enthusiasm around industrial demand linked to the AI and electrification cycle. While gold itself is not a core industrial input in the way copper or silver are, it is nevertheless grouped with precious metals that do have more direct exposure to semiconductor manufacturing, advanced electronics, and energy-intensive technologies. As a result, speculative flows driven by the AI theme have, at times, spilled over into gold, amplifying short-term correlations with risk assets.

This dynamic warrants caution. When gold is partially priced through an “industrial metals” or “technology adjacency” lens, its behavior can temporarily resemble that of growth-sensitive assets rather than that of a pure hedge. In such phases, gold’s correlation with AI-related equities or the broader equity market may rise, potentially diluting its effectiveness as a short-term risk offset. This does not negate gold’s long-term role as a store of value or strategic hedge, but it does suggest that its hedging properties are not invariant across time horizons.

From a portfolio perspective, the implication is straightforward. Gold should not be assumed to provide continuous, linear protection against equity volatility, particularly during periods when thematic enthusiasm—such as the current AI cycle—dominates marginal flows. The asset’s true behavior emerges from the interaction of its monetary, financial, and industrial identities, with the balance between them shifting as market narratives evolve. Recognizing this complexity is essential when assessing gold’s role not just over years, but across the shorter cycles that will likely characterize equity markets in the year ahead.

Thoughts on 2026

Over the past week, the incoming U.S. macro data largely confirmed a continuation of the existing slowdown narrative rather than a meaningful inflection. Backfilled BLS data showed October nonfarm payrolls down 105k, followed by a 64k rebound in November, while the unemployment rate rose to 4.6%, the highest level since 2021. We also saw underperformance in average hourly earnings for the month of November at 0.1%. This brought the year-over-year pace of nominal wage inflation back into the range that defined the pre-pandemic period. In terms of inflation, CPI surprised on the downside in dramatic manner. The year-over-year CPI print came in at just 2.7% and core CPI underperformed expectations at 2.6%. The fact that BLS simply marked some of the changes in OER and the rent components as zero subsequently skewed all of the inflation numbers lower.

Fed policy bias and the outlook for 2026 cuts

Looking ahead to 2026, the Federal Reserve’s policy bias appears increasingly clear: worries on hiring continuing to outweigh inflationary re-acceleration concerns. Employment has become the dominant variable, while inflation as it remains broadly contained, has moved down the list of immediate priorities. Looking forward, the distribution of risks around the jobs market still favor a less restrictive monetary policy stance. And even once Powell’s term is up and we have a new Fed chair, I am expecting that that bias will persist.

At the same time, the Fed prefers owning the front end of the yield curve to the long end of the curve. With government debt levels elevated and refinancing needs rising, maintaining control over short-term rates becomes as much a financial stability consideration as a macro one. Favoring rate cuts or at least resisting premature tightening helps ease debt servicing pressures across the public and private sectors, reinforcing the Fed’s preference for anchoring the front end even if longer-dated yields remain constrained by supply and term-premium dynamics.

equity market considerations for 2026

A more structural challenge sits beneath these near-term policy decisions. Global capital is being aggressively funneled into the AI ecosystem, from semiconductors to data infrastructure. While this investment wave has boosted productivity in select sectors, it has also crowded out employment and consumption growth in more traditional parts of the economy. As capital intensity rises and labor demand softens outside of tech, the Fed is increasingly confronted with data that point to uneven growth—strong at the top, fragile underneath.

This creates a feedback loop that complicates monetary policy. As earnings from major AI companies become macro events that markets trade around, the AI sector has grown too systemically important for policymakers to ignore. In that sense, AI risks becoming “too big to fail” from a market-stability perspective. A dovish fed, intended to support employment broadly, instead channel liquidity disproportionately toward AI and related assets, while offering limited relief to sectors facing structural job losses.

The implication is that, over shorter cycles, monetary policy becomes less effective at addressing real-economy imbalances. Liquidity supports asset prices more readily than it restores employment or consumption in displaced industries. This dynamic raises the risk of further asset-price inflation—even as underlying productivity gains remain uncertain. Heavy capital spending alone does not guarantee a sustained improvement in total factor productivity, and history suggests that such imbalances can eventually surface through higher volatility rather than smooth adjustments.

Against this backdrop, my outlook for 2026 rate cuts is shaped less by traditional inflation metrics and more by labor market fragility and financial stability considerations. The Fed’s easing bias is likely to persist, but its effectiveness may increasingly be expressed through asset prices rather than broad-based economic improvement, setting the stage for a market environment that appears stable on the surface, yet remains vulnerable to sharper dislocations down the road.

Political and fiscal uncertainty as a wildcard

One obvious concern to think about the year ahead is the degree to which the midterm election changes the behavior of the administration. Now we’re going into the midterms assuming that the Democrats take either the House or the Senate and end up with a divided government. This is very consistent with the political wins as well as a typical outcome during the second half of a given president’s presidency. What one would typically think is as a two-term president faces the last two years of his or her presidency with a divided Congress, they would effectively slip into the category of a lame duck or be a placeholder for the next administration. That would typically be characterized by no major initiatives on the legislative front and by a decrease in regulatory changes. Now, that’s a typical environment. Given the current administration’s behavior thus far, it wouldn’t be surprising to see when faced with a divided Congress, the administration tries to further expand the power of the executive branch. Now, whether that translates through to more executive orders and whether or not there’s a concerted effort on the part of the Supreme Court to limit some of the powers of the executive branch all remains to be seen. But, if nothing else, this represents a wild card that could find an expression in the equity market and therefore tighten financial conditions and perhaps more importantly, undermine the wealth effect and thereby cool both inflation and the real economy. According to J. Rangvid, based on current estimates of U.S. household exposure to equities, a 50% drawdown in U.S. equity markets would directly reduce consumer spending by approximately 3.8% and drag GDP growth lower by around 2.6 percentage points. Such a shock would be sufficient to fully offset the historical average growth rate of roughly 2.2%, thereby pushing the economy into a broad-based recession.

Dollar outlook and deficit monetization

Looking into 2026, the U.S. dollar faces growing structural headwinds rather than an obvious bullish catalyst. The Treasury has, for now, helped the Fed navigate a path toward effective deficit monetization, easing funding pressures but reducing the scarcity value of dollars at the margin. This dynamic, combined with a Fed that continues to prioritize labor market risks over inflation concerns, limits the upside for U.S. rates and weakens one of the dollar’s key sources of support.

At the same time, persistent fiscal deficits and heavy Treasury issuance are gradually weighing on sentiment toward dollar assets, even as global alternatives remain imperfect. While the dollar is unlikely to break down sharply given its reserve status, it is also difficult to make a convincing case for sustained strength. The most likely outcome for 2026 is continued range-bound trading with a mild downside bias, driven by easier financial conditions and ongoing deficit financing rather than a dramatic shift in global growth or risk appetite.

Dovish Fed and What’s Going on with Liquidity?

In the week just past, the most relevant macro event came in the form of the FOMC decision to cut policy rates by 25 basis points, widely characterized as a “hawkish cut,” accompanied by an unchanged dot plot implying only one additional cut in 2026. However, the market largely discounted the dots, viewing them as stale given all of the uncertainties surrounding the macro narrative over the course of 2026.

While the initial communication was in keeping with this notion that this week’s cut was something of an insurance measure, what we heard from Powell was taken far more dovishly by the market as the chair acknowledged that the persistent inflation risks resulting from tariffs have not been as severe as initially feared, and there is still plenty of concern around the state of the labor market, which means that the Fed is going to need to continue normalizing rates. Afterall Powell is still in easing mode.

In the meantime, the Fed surprised the market with an earlier-than-expected activation of its Reserve Management Purchase (RMP) program, effectively hedging liquidity risks that showed up as year-end funding pressures emerged. While expectations around the pace and scope of rate cuts in 2026 have cooled, the Fed delivered a more dovish liquidity package than anticipated by announcing the start of RMPs sooner and at a larger scale. In the first month alone, the Fed committed to buying around $40 billion of short-dated Treasuries under three years and signaled that elevated purchasing levels would persist in the months ahead.

This decision came against a backdrop of volatile Treasury General Account (TGA) balances as the government reopened and a sustained decline in reserve balances—recently slipping below 13 % of commercial bank assets. The recent liquidity stress has been pretty visible in risk assets. Bitcoin, often viewed as a liquidity-driven risk barometer, has broken below key technical levels and exhibited heightened volatility.

Part of liquidity tightness can be traced to strategic balance sheet moves by the notably JPMorgan’s withdrawal of roughly $350 billion from its Federal Reserve deposits to buy Treasuries ahead of expected rate cuts. By redeploying these reserves into government debt, JPMorgan materially reduced system-wide reserves, contributing to tighter money market conditions and higher repo rates before the Fed’s liquidity interventions.

The reserve management purchases at $40 billion a month began on the 12th of December is a clear effort on the part of the Fed to support the bill market. I have to mention, using the Fed’s balance sheet to effectively monetize the deficit has long been a risk. And now that it has come to fruition, the takeaway is it’s not a significant market event. It will be interesting to see whether or not the Fed ultimately needs to increase the size of these purchases, but for the time being, $40 billion did air on the higher side of many estimates. The reserve management purchases also came earlier than the market had anticipated, although it does follow intuitively that the Fed would want to get ahead of any potential year-end funding strains.

In fact, a bigger surprise was the language contained in the implementation note, which included the potential for the Fed to buy securities with maturities up to three years. Now, we did see the upcoming month’s purchase schedule released, and it didn’t include anything other than bills, but in interpreting the steepening of the curve, the fact that two and three year notes may potentially be eligible to be purchased, with obviously an emphasis on flexibility from the Fed’s perspective, certainly contributed to the front-ends out performance in the aftermath of the FOMC. And we’ve already had enough conversations about why this is not a QE program, but nonetheless, the slightly longer maturity profile of what might be purchased in the RMPs represented new information that was not the consensus around what the program would look like going into the Fed.

Taking a step back, and I think it’s important to put the Fed’s decision in the context of what the Treasury Department has been messaging in terms of its issuance intentions. It is notable that one of the market’s biggest concerns from a bond bearish perspective over the course of the summer had been the growing deficit and the forward implications for Treasury issuance. When coupled with the fact that Bessent has clearly communicated the Treasury Department will be primarily utilizing the bill market to fund the deficit, this brings us back to one of our key observations about the interplay between the Treasury Department and the Federal Reserve at the moment. And that is that Bessent has effectively forced the Fed into monetizing the deficit. Now with reserve management purchases, the new norm, it’s not QE, but it is expanding the Fed’s balance sheet, we suspect that it will be difficult for the Fed to back away from those programs for the foreseeable future. And looping this back to the concern that these purchases going potentially all the way out to the three-year sector, as the November refunding statement outlined, while the Treasury Department will be focused on bill issuance over the next fiscal year, come fiscal year 2027, which is November 2026, front-end coupon auction sizes are likely to increase, while 10s, 20s and 30s are more likely to be stable. So in the vein of the Fed monetizing the deficit, policy makers have left open the window to extend that all the way out to the two or three-year sector.

Well, after we spent a lot of time discussing who might it be that would serve as the incremental buyer of treasuries, turns out his name is Kevin Hassett.

And he’ll take two.

What Could Push 10-Year Yields Higher from Here

Employment is back in the driver’s seat—and inflation has been politely asked to move to the back. This week’s market narrative is a familiar one, but with a few important twists: labor data continues to soften just enough to keep the Fed on an easing path, and inflation remains well-behaved enough to stay out of the headlines. But beyond the policy debate, there’s a quieter development worth flagging, the triangular consolidation in 10s. Yields haven’t broken lower, they haven’t broken higher, and yet the range keeps tightening. Whether this is simply a pause, or the market coiling for something more directional—is the question lurking beneath an otherwise calm surface.

Employment in the driver seat

In the week just past, the economic data cemented expectations for another 25 basis point rate cut when the Fed meets on December 10th. Specifically, ADP for the month of November showed a decline of 32,000 jobs. This largely served to reinforce the notion that we’re in a no hire, no fire labor market at the moment. Consistent with this was an unexpected drop in initial jobless claims to 191,000. We also saw the Revelio Labs print at negative 9,000 for the month of November, and that compares with a downwardly revised negative 16,000 in October. Overall, the theme for the employment proxies has been mixed to weaker. As a result, not only has this firmed up expectations for a Fed rate cut, but it also reduces the probability that Powell strikes a particularly hawkish tone at the press conference.

This dim outlook is reinforced by the continued headlines about large-scale layoffs and of course the employment proxies. It’s also worth noting that within the ADP series, we saw all of the job losses coming from smaller businesses. This is very consistent with the fact that smaller businesses are reportedly suffering more from tariffs and the trade war uncertainty. It will be worth following this series to see if, in fact, those job losses spread to medium and large size firms in the near term.

At some point over the last several weeks, there was lots of doubt that the Fed was going to be bringing rates lower. But between some of the rhetoric from the likes of William and Waller, coming into this week, we saw a return of market pricing to nearly 100 percent odds of another 25 basis point cut in December. Now this leaves the question of how Powell is going to characterize next week’s cut. Is it going to be of the insurance variety or is it simply the latest step on the journey closer to neutral? At this stage and looking out into 2026, it’s that dynamic which is occupying the attention.

Well contained inflation

As the jobs data is in the driver seat for the Fed, market has moved past peak reflationary angst that really characterized the summer months in the treasury market. We have now seen that there was some tariff pass-through, but it has been reasonably well-contained. And perhaps more importantly, the core inflation measures haven’t managed to materially accelerate to the point of becoming troubling for the treasury market or monetary policy makers. For evidence, we looked to 10-year breakevens, which are still sub-225 basis points. Now, when we look at this series over a 25-year history, the average is 207 basis points. So we’re still above the long-run average, but nowhere near the 300 basis point peak seen during the pandemic.

As long as tariff pass-through is spread out over a longer period of time, then we won’t see forward inflation expectations reset to a materially higher plateau. In fact, in considering the year ahead, as the realized inflation data comes in, I expect breakevens to drift lower. When looking at the period between 2014 and the end of 2019, what I see is that breakevens averaged 178 basis points. I am using this as a medium-term target for break-evens once the market is convinced that inflation has in fact, not only not reaccelerated because of the trade war, but also continued to moderate as some of the key distortions created by the pandemic have worked their way out of the real economy.

A Triangular Pause in 10s

With the above backdrop, there is still one important caveat when it comes to the treasury market, and that caveat remains the global sovereign debt complex. As we’ve seen across JGBs, EGBs, and gilts, yields have displayed a notable stickiness to the upside. While U.S. Treasuries have partially decoupled in recent weeks, the broader global fixed-income landscape continues to cap the downside in U.S. yields, making it difficult for the 10-year to sustainably trade below the 4% threshold. In other words, this is not an outright bond-bearish environment, but it is one that has constrained the scope for a more meaningful rally.

Technically, this dynamic has manifested itself in the 10-year yield consolidating into a tightening triangular formation, with lower highs pressing down against a firm floor near 4%. Volatility has compressed, signaling that the market is increasingly coiled for a directional move, even if conviction on timing remains limited. Importantly, this consolidation reflects not just uncertainty around Fed policy, but also a balance between domestic disinflationary forces and persistent global term-premium pressures.

While the baseline case still favors range-bound trading, the risk of an upside resolution cannot be ignored. A break higher in yields would likely be driven less by U.S. inflation re-acceleration and more by external or structural forces—including renewed upward pressure from global sovereign markets, the AI capital expenditure, increased Treasury supply absorption challenges, or a resurgence in term premium as liquidity conditions tighten. In that sense, any upside move in yields would look less like a growth scare and more like a plumbing-driven repricing, consistent with a world where global borrowing costs remain structurally higher.