MARKET INSIGHTS

Weekly market commentary

Jan 26, 2026 | Blackrock Investment Institute
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Immutable laws in action again

Market take

Weekly video_20260126

Michel Dilmanian

Portfolio strategist, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

Camera frame

Title slide: Immutable economic laws in action again

Developed market government bonds yields jumped last week after fresh U.S. tariff threats – though the headlines focused on the selloff in Japanese Government Bonds. As the U.S. backed off from new tariffs, DM yields fell – showing how immutable economic laws again came into play.

1: More corporate bonds coming

Bond markets have started the year with a bang. Developed market bond yields jumped – particularly in Japan where 40-year yields saw historic spikes. These moves quickly grabbed headlines but were short lived as immutable economic laws limited extreme outcomes yet again.

Meanwhile, U.S. corporate bond issuance is forecast to hit a record-high this year as companies are leveraging up to fund the AI buildout, as described in our Global Outlook. This is a feature of the current market environment, in our view.

2: Japan’s fiscal concerns stoking volatility

The headlines around the government bond selloff focused on JGB yields . But we think the story is a global one, where geopolitics are running up against immutable economic laws – specifically, the need for sizeable foreign investment to finance U.S. debt.

Any spike in long-term bond yields could quickly raise questions about debt sustainability. This has already played out, with the result being a moderation of policies.

3: Leveraging up

This risk of higher bond yields comes against a corporate sector that’s leveraging up. Public and private balance sheets have diverged sharply since the Financial Crisis, but U.S. corporates have room to take on more leverage, and they’re doing so from a position of strength.

Yet more leverage overall makes the financial system more vulnerable to shocks - like the yield spike we saw in Japan last week.

Against this backdrop of a surge in issuance, we’re more selective in fixed income. We prefer high yield over investment grade debt, and short-term over long-term credit. We also prefer direct lending in private credit and favor established, large borrowers.

Outro: Here’s our Market take

The recent spike and subsequent decline in yields shows how immutable economic laws can limit extreme outcomes. We stay underweight long-term DM government bonds – but still see select opportunities in fixed income.

Closing frame: Read details: blackrock.com/weekly-commentary

Immutable laws in play

Last week saw immutable laws limiting how far U.S. trade policy can go. Our leveraging up theme is also playing out with near-record bond issuance.

Market backdrop

U.S. stocks were flat in a volatile week marked by renewed geopolitical tensions. U.S. 10-year yields hit a four-month high. Gold soared 8% to new record highs.

Week ahead

We expect the Fed to leave interest rates unchanged this week. Mixed signals from recent jobs and inflation data justify a “wait-and-see” stance, in our view.

Solid U.S. economic growth and Federal Reserve rate cuts have boosted corporate earnings and profit margins, lifting U.S. stocks and underpinning our overweight. We think this will keep playing out in Q4 earnings results starting this week. We see three themes: a further narrowing of the earnings gap between the “magnificent seven” stocks and other sectors; mega forces supporting cyclical sectors; and AI-led productivity gains potentially offsetting typical earnings downgrades.

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More corporate bonds coming
Gross issuance of U.S. investment grade bonds, 2011-2026

The chart shows U.S. investment grade bond issuance hitting a record $1.85 trillion this year, driven by a surge in corporate bond sales, partly tied to the AI buildout.

Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, with data from BlackRock Capital Markets and Credit Flow Research. Note: Gross bond issuance is the total amount of new corporate bonds sold in the primary market, before accounting for redemptions.

Bond markets have started 2026 in a bumpy fashion. DM government bond yields jumped, particularly in Japan, with historic spikes in 30- and 40-year yields. We see the jump as primarily a global story driven by renewed U.S. tariff threats to Europe. The quick walk-back of those threats underscored how geopolitics – and U.S. trade policy – is colliding with immutable economic laws that constrain policy swings. Another feature of this fixed income environment: an expected surge in U.S. corporate bond sales, partly tied to the AI buildout, with BlackRock’s global markets team seeing U.S. investment grade bond issuance hitting a record $1.85 trillion this year. See the chart. This shows the leveraging up theme from our 2026 Outlook at play: greater leverage can create vulnerabilities that expose the financial system to shocks like government bond yield spikes.

We think last week’s bond market volatility is ultimately a global story driven by U.S. tariff threats, with the impact amplified in the more-volatile Japanese government bond (JGB) market by technical factors: new fiscal worries after a snap election was called and a weak auction of long-term bonds. Yet U.S. trade policy again ran into an immutable economic law: the U.S.’s need for sizeable foreign investment to finance its debt in a world shaped by greater bond supply and higher-for-longer interest rates. Any spike in long-term bond yields can heighten debt sustainability concerns, repeatedly leading to a moderation of policy extremes over the past year. In this environment, bonds no longer provide the same level of portfolio ballast, keeping us tactically underweight long-term JGBs since 2023, and long-term U.S. Treasuries since December 2025.

Immutable economic laws can limit extreme outcomes

Also playing out in bond markets this year: our leveraging up theme. The risk of surging bond yields comes against a U.S. corporate sector leveraging up to fund the AI buildout. Unlike the public sector, U.S. corporates have room for more leverage. Public and private balance sheets have diverged sharply since the 2000s, with government debt surging to post-World War II highs while corporate leverage eases, U.S. government and LSEG data show. And unlike the run-up to the dot-com bubble, the mostly mega cap tech companies powering the AI buildout are issuing from a position of strength, we think. But more leverage throughout the financial system makes it more vulnerable to shocks, such as bond yield spikes tied to fiscal concerns like those that we saw in Japan last week and policy tensions between managing inflation and debt servicing costs.

This shapes our fixed income views. Greater investment grade (IG) bond issuance this year is one reason we prefer high yield bonds over IG, and within IG short-term over long-term credit. We like mortgage-backed securities offering similar risk but higher income versus U.S. Treasuries. We also like emerging market debt (EMD) that we see benefiting from EM countries delivering improved fiscal and monetary policy, as well as a weaker U.S. dollar. In private credit, we favor direct lending, especially established and large borrowers who can better underwrite deals, in our view.

Our bottom line

Immutable laws again limited policy extremes after a brief jump in bond yields. We are underweight long-term DM government bonds. We favor mortgage-backed securities, emerging market bonds and stay selective in credit.

Market backdrop

The S&P 500 slipped slightly in a volatile week but is still up about 1% this month. U.S. President Donald Trump threatened tariffs on European countries over Greenland before calling them off and saying an agreement had been struck. South Korean stocks rose 3% and have climbed 18% this year. U.S. 10-year Treasury yields jumped to a four-month high near 4.30%. Gold was the winner over geopolitical uncertainty, soaring 8% on the week to a fresh record.

The Fed’s rate decision is this week’s main event. We think the Fed will leave interest rates unchanged given mixed signals from recent jobs and inflation data. U.S. trade data for November will show if October’s trade deficit, a near two-decade low, will persist, potentially lifting expectations for 2025 GDP growth. Japan unemployment data will shed light on its tight labor market. We see room for more Bank of Japan hikes as it normalizes monetary policy.

Week ahead

The chart shows that gold is the best performing asset year to date among a selected group of assets, while brent crude is the worst.

Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of January 22, 2026. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, spot bitcoin, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bloomberg Global High Yield Index, J.P. Morgan EMBI Index, Bloomberg Global Corporate Index and MSCI USA Index.

Jan. 27

U.S. consumer confidence

Jan. 28

U.S. Federal Reserve policy decision

Jan. 29

U.S. trade balance; Japan unemployment

Jan. 30

Euro area flash GDP, unemployment; U.S. PPI

Read our past weekly commentaries here.

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Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, January 2026

  Reasons
Tactical  
Still favor AI We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large listed tech companies. Continued Fed easing into 2026 and reduced policy uncertainty underpin our overweight to U.S. equities.
Select international exposures We like Japanese equities on strong nominal growth and corporate governance reforms. We stay selective in European equities, favoring financials, utilities and healthcare. In fixed income, we prefer EM due to improved economic resilience and disciplined fiscal and monetary policy.
Evolving diversifiers We suggest looking for a “plan B” portfolio hedge as long-dated U.S. Treasuries no longer provide portfolio ballast – and to mind potential sentiment shifts. We like gold as a tactical play with idiosyncratic drivers but don’t see it as a long-term portfolio hedge.
Strategic  
Portfolio construction We favor a scenario-based approach as AI winners and losers emerge. We lean on private markets and hedge funds for idiosyncratic return and to anchor portfolios in mega forces.
Infrastructure equity and private credit We find infrastructure equity valuations attractive and mega forces underpinning structural demand. We still like private credit but see dispersion ahead – highlighting the importance of manager selection.
Beyond market-cap benchmarks We get granular in public markets. We favor DM government bonds outside the U.S. Within equities, we favor EM over DM yet get selective in both. In EM, we like India which sits at the intersection of mega forces. In DM, we like Japan as mild inflation and corporate reforms brighten the outlook.

Note: Views are from a U.S. dollar perspective, January 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, January 2026

Legend Granular

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Asset   Tactical view Commentary
Equities      
United States   United States: tactical Overweight +1 We are overweight. Strong corporate earnings, driven in part by the AI theme, are supported by a favorable macro backdrop: continued Federal Reserve easing, broad economic optimism and less policy uncertainty, particularly on the trade front.
Europe   Europe: tactical Neutral 0 We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare.
UK   UK: tactical Neutral We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift.
Japan   Japan: tactical Overweight +1 We are overweight. Strong nominal GDP, healthy corporate capex and governance reforms – such as the decline of cross-shareholdings – all support equities.
Emerging markets (EM)   Emerging markets: tactical Neutral We are neutral. Economic resilience has improved, yet selectivity is key. We see opportunities across EM linked to AI and the energy transition and see the rewiring of supply chains benefiting countries like Mexico, Brazil and Vietnam.
China   China: tactical Neutral We are neutral. Trade relations with the U.S. have steadied, but property stress and an aging population still constrain the macro outlook. Relatively resilient activity limits near-term policy urgency. We like sectors like AI, automation and power generation. We still favor China tech within our neutral view.
Fixed income      
Short U.S. Treasuries   Short U.S. Treasuries: tactical Neutral We are neutral. We see other assets offering more compelling returns as short-end yields have fallen alongside the U.S. policy rate.
Long U.S. Treasuries   Long U.S. Treasuries: tactical Neutral We are underweight. We see high debt servicing costs and price-sensitive domestic buyers pushing up on term premium. Yet we see risks to this view: lower inflation and better tax revenues could push down yields near term.
Global inflation-linked bonds   Global inflation-linked bonds: tactical Neutral We are neutral. We think inflation will settle above pre-pandemic levels, but markets may not price this in the near-term as growth cools.
Euro area government bonds   Euro area government bonds: tactical Neutral We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany.
UK gilts   UK gilts: tactical Neutral We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility.
Japanese government bonds   Japanese government bonds: tactical Underweight -1 We are underweight. Rate hikes, higher global term premium and heavy bond issuance will likely drive yields up further.
China government bonds   China government bonds: tactical Neutral We are neutral. China bonds offer stability and diversification but developed market yields are higher and investor sentiment shifting towards equities limits upside.
U.S. agency MBS   U.S. agency MBS: tactical Overweight +1 We are overweight. Agency MBS offer higher income than Treasuries with similar risk, and may offer more diversification amid fiscal and inflationary pressures.
Short-term IG credit   Global investment grade: tacticalOverweight +1 We are neutral. Corporate strength means spreads are low, but they could widen if issuance increases and investors rotate into U.S. Treasuries as the Fed cuts.
Long-term IG credit   Global investment grade: tactical Underweight -1 We are underweight. We prefer short-term bonds less exposed to interest rate risk over long-term bonds.
Global high yield   Global high yield: tactical Neutral We are neutral. High yield offers more attractive carry in an environment where growth is holding up – but we think dispersion between higher and weaker issuers will increase.
Asia credit   Asia credit: tactical Neutral We are neutral. Overall yields are attractive and fundamentals are solid, but spreads are tight.
Emerging hard currency   Emerging market-hard currency: tactical Underweight We are overweight. A weaker U.S. dollar, lower U.S. rates and effective EM fiscal and monetary policy have improved economic resilience. We prefer high yield bonds.
Emerging local currency   Emerging market-local currency: tactical Neutral We are neutral. A weaker U.S. dollar has boosted local currency EM debt, but it’s unclear if this weakening will persist.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, January 2026

Legend Granular

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Asset Tactical view Commentary
Equities    
 Europe ex UK Europe ex UK: tactical Neutral We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare.
Germany Germany: tactical Neutral We are neutral. Increased spending on defense and infrastructure could boost the corporate sector. But valuations rose significantly in 2025 and 2026 earnings revisions for other countries are outpacing Germany.
France France: tactical Neutral We are neutral. Political uncertainty could continue to drag corporate earnings behind peer markets. Yet some major French firms are shielded from domestic weakness, as foreign activity accounts for most of their revenues and operations.
Italy Italy: tactical Neutral We are neutral. Valuations are supportive relative to peers. Yet we think the growth and earnings outperformance that characterized 2022-2023 is unlikely to persist as fiscal consolidation continues and the impact of prior stimulus peters out.
Spain Spain: tactical owerweight +1 We are overweight. Valuations and earnings growth are supportive relative to peers. Financials, utilities and infrastructure stocks stand to gain from a strong economic backdrop and advancements in AI. High exposure to fast-growing areas like emerging markets is also supportive.
Netherlands Netherlands: tactical neutral We are neutral. Technology and semiconductors feature heavily in the Dutch stock market, but that’s offset by other sectors seeing less favorable valuations and a weaker earnings outlook than European peers.
Switzerland Switzerland: tactical Neutral We are neutral. Valuations have improved, but the earnings outlook is weaker than other European markets. If global risk appetite stays strong, the index’s tilt to stable, less volatile sectors may weigh on performance.
UK UK: tactical neutral We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift.
     
Fixed income    
Euro area government bonds Euro area government bonds: tactical Neutral We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany.
German bunds German bunds tactical Underweight -1 We are neutral. Markets have largely priced in fiscal stimulus and bond issuance, and expectations for policy rates align with our view.
French OATs French OATss: tactical Underweight -1 We are neutral. Political uncertainty, high budget deficits and slow structural reforms could stoke volatility, but current spreads incorporate these risks and we don’t expect a worsening from here.
Italian BTPs Italian BTPss: tactical Neutral We are neutral. Demand from Italian households is strong at current yield levels. Spreads tightened in line with its sovereign credit upgrade, but a persistently high debt-to-GDP levels means they likely won’t tighten further.
UK gilts UK gilts: tactical neutral We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility.
Swiss government bonds Swiss government bonds: tactical tactical Neutral We are neutral. We don’t think the Swiss National Bank will slash policy rates to below zero, as markets expect.
European inflation-protected securities European inflation-protected securities: tactical Neutral We are neutral. Our medium-term inflation expectations align with those implied in current market pricing.
European investment grade European investment grade: tactical Neutral We are neutral. We favor short- to medium-term debt and Europe over the U.S. An intense re-leveraging cycle to support the AI buildout could put upward pressure on U.S. spreads, making Europe relatively more attractive.
European high yield European high yield: tactical owerweight +1 We are overweight. Spreads hover near historic lows, but credit losses have been limited in this cycle and better economic growth in 2026 could reduce them further.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, January 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Meet the authors
Jean Boivin

Jean Boivin

Head – BlackRock Investment Institute
Wei Li

Wei Li

Global Chief Investment Strategist – BlackRock Investment Institute
Ben Powell

Ben Powell

Chief Investment Strategist for the Middle East and APAC — BlackRock Investment Institute
Michel Dilmanian

Michel Dilmanian

Portfolio Strategist – BlackRock Investment Institute