By Martin Baccardax
The current turmoil in global bond markets, which has triggered a spike in U.S. Treasury yields and a record slump in Japan, could have big implications for stock markets heading into a crucial early stretch of the new year.
President Donald Trump's vow to take over Greenland "one way or the other," as well as his new tariff threats on European allies and the ongoing pressure on Federal Reserve independence, has stoked a new phase of the so-called Sell America trade in bond markets that spilled over violently into stocks on the first day of the holiday-shortened week.
The S&P 500 lopped off its entire 2026 advance on Tuesday, slumping 2.06% in the benchmark's biggest pullback since the "Liberation Day" selloff in early April. The tech-focused Nasdaq Composite, meanwhile, tumbled 2.4%, extending the months-long drawdowns in major stock such as Nvidia, Apple, Microsoft, and Meta Platforms.
The bond market slump Tuesday, which was accelerated by a looming fiscal crisis in Japan as the country heads toward a snap national election next month, lifted benchmark 10-year Treasury note yields just past 4.3%, the highest since August 2025.
Longer-dated 30-year bond yields also were active, rising to as high as 4.95% in early trading and threatening to breach the 5% threshold for the first time since July.
A move by a pension fund in Denmark to sell its $100 million holdings of U.S. Treasuries, which was linked to Trump's rhetoric over Greenland, added to the session's angst.
The U.S. dollar index fell to a two-month low against a basket of its global peers and broader market volatility gauges vaulted to the highest levels since November. Gold also has been printing all-time record highs.
Bond markets appeared calmer on Wednesday, with 10-year note yields easing to 4.277% and the dollar holding modest gains in foreign exchange trading, as investors eyed Trump's address to the World Economic Forum in Davos, Switzerland, later in the day.
"Greenland will be the dominant theme today and there may be scope for de-escalation, offering the dollar some support," said Francesco Pesole, FX strategist at ING. "If the past year has shown anything, it's that face--to--face engagement tends to provide the best opportunity for tensions with the U.S. president to ease."
That might not be enough to undo the damage from a bond market selloff that also was tied to concerns such as Fed independence, and Japan's fiscal woes, that won't be addressed in the Swiss mountain resort.
Adam Turnquist, chief technical strategist at LPL Financial, argued that 10-year Treasury yields have broken out of the trading range they've been held in for much of the past few years, and breached their 200-day moving average earlier this week.
That could be a worrying development for stocks heading into both the bulk of the fourth-quarter earnings season, a Fed decision on interest rates, and a Supreme Court ruling on the president's tariff authority over the coming weeks.
"Since 2022, there have been 10 other crossovers above the 4.2% level on a weekly closing basis," Turnquist said. "The S&P 500 posted an average decline over the next two months of -2.6% and finished lower during seven of the 10 periods."
Market reaction could be different this time, of course, and the fundamentals of U.S. equities seem sound. The fourth-quarter earnings season has been off to a solid start, with profit growth pegged at around 9%, and analysts see another year of double-digit gains for the S&P 500 over the whole of the year.
But Japan's bond market isn't likely to remain quiet for long, and the "Sell America" trade could be revived by a single social media posting from a president that seems increasingly inured to reaction from Wall Street.
Bond markets are said to be a daily referendum on the government, as their moves crystallize the impact of fiscal, monetary, domestic, and foreign policies into a series of tradable data points.
Stock market investors will need to keep a very close eye on all of them.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 21, 2026 06:40 ET (11:40 GMT)
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