Weekly Commentary: Issues 2026

2026-01-24 03:15:04 ET

"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....

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