Weekly Notes from Tim
By Tim Holland, CFA, Chief Investment Officer
- When it comes to investing, we live in a relative world….every investor must decide where, when, and why to put their capital: stocks or bonds; US or international; public or private markets, and so on. Even the decision to go to cash is a relative decision, the investor believing holding US dollars at that point in time offers the best balance of risk and return relative to other investments. Which means, in theory, every investable asset is competing with every other investable asset for capital. And capital should go where it will be best treated. Which brings us to the subject of this week’s note – the Japanese bond market.
- You may have read that the yield on the 10 Year Japanese Government Bond recently hit an 18 year high of 1.96% (see chart). As to how we got here after years of deflation, negative interest rates and rolling recessions in the world’s fourth largest economy, market participants would likely cite the inflation shock from the pandemic, ongoing fiscal support for the economy and the Bank of Japan ending its yield curve control policy in 2024. More recently, talk of incremental economic stimulus from Japan’s new Prime Minister and an expected rate hike at the Bank of Japan’s December meeting have biased bond yields higher.
- To tie the points above together, Japanese bond yields have not been this attractive in years, which means Japanese investors could begin allocating more capital to the asset class. As to why that might be an issue for the US, well, Japan owns more than $1 trillion of US bonds, so if Japanese investors sell US bonds to raise capital to buy their bonds, that could push our yields higher – at a time when the Fed is lowering rates to support the US economy, and the US government is issuing or refinancing trillions of dollars of debt (and would like to do so at the lowest rate or yield possible). To date, we don’t think the backing up in Japanese bond yields has had a material impact on the US bond market and would point out that the yield on the US 10 Year Note has fallen by 45 basis points this year. That written, we and other investors will be watching the interplay between the world’s largest (US) and fourth largest (Japan) bond markets closely in 2026.
Source: FactSet, 2025
Looking Back, Looking Ahead
By Ben Vaske, BFA, Manager, Investment Strategy
Last Week
As expected, the Federal Reserve cut rates by 25 bps, bringing the target range to 3.50%–3.75%. Chair Powell signaled a pause going forward, noting the Fed will wait for clearer signals from inflation and labor before taking additional action.
Markets reacted unevenly. Technology stocks struggled, driven by continued weakness in Oracle and a sharp selloff in Broadcom late in the week. Value stocks outperformed growth, while small caps gained about 1% as lower policy rates supported risk assets.
Interest rates moved higher on the long end, continuing the recent steepening of the yield curve and pushing fixed income prices lower. The US dollar fell further and is now down more than 9% YTD, which helped international equities post modest gains.
Apart from monetary policy, President Trump also signed an executive order establishing a single federal regulatory framework for artificial intelligence, limiting states’ ability to impose their own AI rules.
This Week
It is a heavy week for economic data. Markets will digest the delayed November employment report, CPI, retail sales, and housing data, all of which will help shape expectations for the Fed’s next move.
Fed communication will also be in focus. Several officials are scheduled to speak following last week’s cut, including John Williams, Chris Waller, Raphael Bostic, and Stephen Miran. Investors will be listening closely for any confirmation that policy is on hold into early 2026.
Looking ahead, markets are already turning toward the January 28 Fed meeting. Current probabilities show a 76% chance of a hold. Growth expectations continue to ease, with the Atlanta Fed GDPNow estimate for Q3 at 3.6%.
On the earnings front, Nike, Micron, and Accenture headline an otherwise quiet week. FactSet estimates Q4 S&P 500 earnings growth at 8.1%, which would mark the 10th consecutive quarter of earnings growth, though guidance remains mixed.
We hope you have a great week. If there’s anything we can do to help you, please feel free to reach out to ben.vaske@orion.com or opsresearch@orion.com.