Volatility, ‘Sell-America’ Movement Will Complicate Bond Investing in 2026
Less than a month in, 2026 is already shaping up to be an interesting year for fixed-income investors. The yield curve is steepening, and there are growing questions about rising risks in the bond market. Long-term trends, including tariffs and trade policy; falling foreign demand for bonds; and rising deficits could put upward pressure on Treasury yields. Still, sources say markets will find a way to play through, but investors may have to stomach higher volatility for the foreseeable future.
Selling America
President Donald Trump’s stance on trade has created volatility in the bond market. It is also pushing more investors to consider the so-called “sell America” trade—essentially trying to limit as much exposure to the U.S. as possible, while finding global replacements for American equities and bonds.
To be clear, there are a lot of moves global investors can make in this direction. Just last week, France announced its government would drop Microsoft Teams and Zoom in favor of a French video conferencing service called Visio. Several European institutional investors have also announced plans to cut their exposure to U.S. Treasury debt. Taiwan announced in 2025 $3.2 billion of government subsidies for domestic technology companies to develop artificial intelligence and other capabilities domestically, with the goal of limiting dependence on other countries. While these moves made headlines, they are still relatively marginal compared to the total size of the U.S. Treasury market and total exposure to the U.S. writ large.
In comments following the January 28 Federal Reserve meeting, Fed Chair Jerome Powell said he did not think the sell-America movement was having a significant impact yet—at least according to the data the Fed tracks. That said, the longer America maintains the kind of chaotic policy position it has had over the past year, the more global trust erodes.
“Everyone knows by now this isn’t about trade balances or trade deficits,” says Jason Hsu, founder and CIO of Rayliant Global Advisors. “It’s about leverage. The U.S. is basically trying to use trade policy as leverage to get what it wants. But it hasn’t always been effective, and we have seen the administration back off when it becomes clear that it’s not going to be effective. What [the policy] does do is cause people to rethink whether they want to hold the dollar as the be-all, end-all currency. That has a knock-on impact with Treasurys. So it has a cascading effect.”
Hsu says if Trump is successful in reshaping the Fed and forcing another round of quantitative easing, the impact of weakening demand for the dollar and U.S. Treasurys could be mitigated by increased domestic economic and investment activity that results from lower rates. All of that, however, depends on Senate approval of an as-yet unnamed new Fed chair, and it is not yet clear there would be broad-based support for a loyalist Fed.
Brad Conger, the CIO at OCIO firm Hirtle, Callaghan & Co., says he thinks it will be an uphill battle for the Trump administration to get a fully loyalist Federal Reserve.
“Everyone under consideration right now understands that it would be very disruptive to the bond market to lose Fed independence,” Conger says. “If the market doesn’t trust the incoming chair, you’re going to see a lot more risk premium in Treasurys.”
Hsu adds that selling America isn’t that easy.
“The challenge for everyone is: Where else do you go?” he says. “The U.S. has market dominance in a lot of industries, so it’s not realistic to think you can swap out all of your U.S. exposure with global replacements and end up with the same outcomes.”
The end result, then, might be a significant erosion of global trust, with a side of greater diversification in investment portfolios, rather than a total pullback from the U.S.
“I think de-dollarization is going to continue because there is a recognition on the part of central banks that they need more diversification from a risk-management perspective,” Hsu says. “One of the drivers of the move toward more portfolio diversification, broadly, is also coming from how high valuations are in U.S. equities and bonds. There are diversification opportunities that are there, but it’s not necessarily because of trade policy.”
Conger, who is currently short the dollar, agrees. He notes that fixed-income markets do have a somewhat self-regulating mechanism in that they can impose limits on policy, and the administration—so far—has been responsive to pushback from the bond market.
Shifting Alliances
Alongside the de-dollarization trend, global trade patterns are shifting. Mary-Therese Barton, CIO for fixed income at Pictet Asset Management, says the changing patterns offer investors opportunities to diversify their exposure and get paid for it, but it may also require investors to take a more active approach if they want to capture new opportunities as they arise.
“We’re talking to investors about having a more global mindset,” Barton says. “We think, going forward, there is going to be a greater need for more geographical diversification. Alongside that is having the willingness to be more unconstrained in approach because there are new term premia and break-even [levels]—credit risk is being redefined. It’s not just about the macro data anymore. The tariff cycle, trade policy, other policy developments can just as easily move your book, and that’s right out of the emerging markets playbook.”
Barton says a more fragmented global trade map implies higher structural inflation, potentially higher neutral rates, and more volatile interest rate cycles going forward.
“When you start seeing greater regionalization, you’re going to see more winners and losers,” Barton says. “That requires an active approach.”
Emerging markets credit was one of the highest returning parts of the credit market last year, in part because emerging markets managers knew how to trade these shifts—a trend Barton says is likely to persist this year.
Bending the Curve
It’s one thing to take a more unconstrained approach to credit on the margins, but many institutional investors are buyers of long-dated Treasurys because they have long-dated liabilities. Recent bond market activity suggests there is some price discovery happening at the long end of the yield curve, as investors think through what the uptick in volatility ultimately means. Fixed-income investors have also been rewarded for shorter-duration exposures over the past few years. That trade that might look safer for the moment if investors are uncomfortable with the level of bond-market uncertainty.
Barton says she has talked to investors about avoiding consensus bias in their portfolios.
“Investors feel insulated from volatility at the short end,” Barton says. “But if you’re looking at fixed income for income, it may be worth reassessing your break-evens and taking a second look at adding duration, because there are opportunities there across the spectrum, from high yield to emerging markets.”
Conger, who has been adding duration to his credit exposure for over a year, takes a similar approach.
“I can sympathize with investors who are worried about risk. But there’s an opportunity cost to that, because now the curve is upward sloping,” he says. “It does cost you current carry to deal with that. I don’t think the 10-year right now is exactly a steal, but it is an insurance policy if there is a hiccup somewhere in the economy.”
Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust Co. International, is also positive on adding duration and looking at credit opportunities across the spectrum of fixed income. He says 2026 is likely to be another record year for new issuance, and the bulk of it will be high-quality, investment-grade opportunities.
“Markets are open, the liquidity is there,” MacDonald says. “There is a lot for investors to take advantage of at the moment.”
Tags: Bonds, Fixed Income Interest Rates
