Solid Core, Diversified Your Yield
Chart of the Week:
U.S. Targets Venezuela, Intensifying the Global Resource Battle and Fuel-Market Volatility
After President Trump ordered an airstrike on Venezuela, Nicolás Maduro was captured and will face trial on narcoterrorism and related charges. The underlying motive stems from Venezuela’s status as the country with the world’s largest proven crude reserves. According to OPEC, Venezuela holds roughly 20% of global reserves at 303bn barrels—surpassing even Saudi Arabia’s 260bn barrels. Following the tariff announcement, U.S. imports of heavy crude from Mexico and Canada declined, and Trump stated the U.S. will transfer 30–50mn barrels from Venezuela—highlighting Washington’s intent to control the world’s largest heavy-crude reserve base.
Market Recap 1:
Capital Flows Lift Major Equity Markets; Policy Expectations Drive Sector Gains
U.S. December ISM manufacturing PMI slowed to47.9, below the expected 48.4, though new ordersshowed slight improvement. ISM services PMI roseto 54.4 on a sharp rise in new orders and hiringreturning to expansion, beating expectations (52.2)and last month’s 52.6—the highest since October2024. This indicates economic resilience and acontinued K-shaped pattern. Despite a mild pickupin geopolitical tensions, accommodative policycontinues to channel liquidity into major equitymarkets, pushing indexes higher. U.S. equityvolatility remains low; upcoming political events andlabor data warrant attention.
Market Recap 2:
Loose Liquidity and Rising Geopolitical Tensions Keep Metal Prices Hitting New Highs
U.S. rate futures now imply two Fed cuts in 2026pushed beyond June. Over the past week, Treasuryyields—except the 2Y—have mostly drifted lower,and risk appetite supported gains in global high-yield credit. President Trump announced plans todeploy USD 200bn from Fannie Mae and FreddieMac to buy mortgage-backed securities in order topush mortgage rates down. Ahead, labor data andthe upcoming Supreme Court ruling on IEEPAremain key—if tariffs are overturned, Treasury yieldscould see heightened volatility.
What’s Trending:
CES Highlights AI Hardware Ramp-Up; Edge Devices Power Physical-AI Development
CES 2026 centered on three themes—AI, digitalhealth, and automotive solutions—all pointingtoward more concrete AI applications extendingfrom the cloud to edge devices, including AI PCs,humanoid robots, automotive systems, and smart-home appliances. Key updates in servers includedNvidia’s Rubin chips entering mass production,AMD unveiling a new system to compete withNvidia’s NVL72 (with an OpenAI procurementagreement), and Intel introducing its next-generationCore Ultra 300 CPU aimed at enhancing edge-computing performance.
In Focus 1:
Policy Direction Lifts Markets; Economic Momentum Supports Quality Bonds
U.S. labor-market cooling leaves room for at leasttwo Fed cuts in 2026, making the U.S. one of the fewmajor economies expected to maintainaccommodative policy. In contrast, the ECB and BoJlean slightly hawkish. Meanwhile, expansionary fiscalpolicy across the U.S., Eurozone, and Australiacontinues to push major government-bond yieldshigher—Germany’s 10Y near 3% and Japan’s 10Yabove 2%, the highest since 2011 and 1997. Thissteepening of yield curves may challenge issuers’refinancing costs.
In Focus 2:
Quality Bonds Still Attractive; Diversified Allocation Reduces Concentration Risk
With the Fed maintaining its expected pace of ratecuts—and balance-sheet runoff ending alongsideReserve Management Purchases—the outlook forTreasury supply has shifted, helping dampen ratevolatility. This environment also supports tighter creditspreads for rate-sensitive investment-grade (IG)bonds. For 2025, IG performance was driven not onlyby credit-spread levels but also by changes inissuance. We estimate U.S. IG supply will rise 17% in2026 to USD 1.8tn. Focus on sectors with below-average net issuance and appealing spreads, such asfinancials, telecom, energy, and utilities.
