The 10-year JGB yield has now punched upward to 1.868%, its highest since the summer of 2007, as new Prime Minister Sanae Takaichi presses ahead with plans for fiscal expansion while the Bank of Japan suggests a rate hike could be imminent. The country has a massive amount of debt outstanding, and it’s not surprising that its yields are rising now that it’s attempting normalize.
But what does this have to do with Monday’s sharp 7.3-basis-point rise in the benchmark 10-year US yield? Several factors were prodding bond prices down. Bets on the Federal Reserve in the futures market have now moved to total certainty that there will be a fed funds rate cut next week. It’s been a quick turnaround, and all else equal would push bond yields down — which is what happened to three-month yields, but not to the 10-year. The spread between the two widened by the most in six months:
They were following JGBs, but it’s not immediately obvious why. The economic news of the day was decidedly blah. The biggest data point, the ISM manufacturing survey for November, was a downer. New orders dipped into contractionary territory, and also fell below inventories, always a bad sign. The headline was down. If there was anything good, it was the number for prices paid, a decent leading inflation indicator. It fell a bit, but remains too high for comfort. Taken together, there was every reason for bond yields to be lower after this glum release came out than they had been before:
And that was reflected in expectations for the Fed. In a sharp turnaround during Thanksgiving week, the implicit odds of a rate cut have swung from 24% to 96%. That isn’t the terrain for a big upward jolt in bond yields. It’s possible to build something out of the growing speculation that Kevin Hassett, who has presented himself as the most dovish of the leading candidates, will soon be nominated to chair the Fed. Polymarket now puts his odds at 84%. If he was felt to be dangerously dovish, that might apply pressure on longer bond yields, which would be worse affected by inflation. But fed funds rate expectations for next June, which would be the new chairman’s first meeting in charge, have been very stable, and suggest that there will be only one 25-basis-point cut during the first half of 2026:
So the spike in the 10-year yield gets hard to explain without invoking Japan. And here, the key point is that Tokyo has provided reliable cheap funds. Higher JGB bond yields would endanger a lucrative trade. In the four years since the Fed began tightening in 2022, a carry trade of borrowing in yen and parking in the dollar has grown at 12.6% per annum:
If JGBs are going to start offering a competitive yield, then that easy money is no more, and it makes sense to pull money from Treasuries to reallocate to Japan. That seems to be what’s happening.
A further disquieting sign comes from precious metals. Silver, gold’s more speculative little cousin, has surged to a fresh all-time high, while Bitcoin is tumbling. It’s a sign of monetary disquiet, as precious metals would grow more attractive if the US government attempted to pressure investors into buying Treasuries, and testifies to fears of the withdrawal of Japanese easy money.
Que Nguyen, chief investment officer of equity strategies at Research Affiliates, argued that Treasuries sold off not so much in sympathy with Japan as “in anticipation that the glow of cheap money to the US is going to be interrupted.” She added:
The problem is that if interest rates are going to normalize in Japan, what’s the incentive to buy Treasuries? The US doesn’t save enough to finance its own debt and so we need people from Japan and China consistently buying our debt. It’s worked because we are the reserve currency, but we are pulling back from global trade.
Relatively quietly, the world has turned upside down over the last five years. At the end of 2020, China’s 10-year yields were the highest in the major economies by a wide margin. Now, they’ve been passed even by Japan’s. German bund yields were negative — now they’re higher than either Japan or China, with the pressure of big fiscal expansion coming next year. The US, with more reliable growth and more resilient inflation than the rest, now carries significantly the highest yields:
As for China, for which American officials seem to have rather less sympathy, the decline in yields is another story…
- Underlying strength is everywhere.
- Looks like uptrends for the most important sectors.
- The charts tell a clear story…
The weight of the evidence in small caps keeps pointing in the same direction: higher.
The Russell 2000 just posted its third straight monthly close at new all-time highs, and when you break it down sector by sector, the underlying strength becomes obvious.
These aren’t downtrends hiding inside the small-cap indexes. They’re clean uptrends… or big, healthy bases forming within longer-term uptrends.
And when most stocks inside an index are rising, it’s awfully hard for the index itself to go down.
New All-Time Highs Again
Here’s the Russell 2000, an index that makes up roughly two-thirds of the entire Russell 3000:
And remember, the Russell 3000 represents more than 98% of all investable U.S. equity assets.
So when two-thirds of that universe is breaking out to new all-time highs again, it matters.
A decisive breakout above the 2021 highs in small caps would be a major development for the broader market.
Back then, these indexes were already rolling over.
The deterioration under the surface was obvious, and the weakness only intensified throughout 2022.
This time? We’re seeing the exact opposite.
Go sector by sector… stock by stock: The underlying strength is everywhere.
The Sum of the Parts Adds Up
These are four of the most important sectors in the entire market – and arguably even more critical inside the small-cap universe.
Together, they make up nearly 60% of the entire Russell 2000.
Now look at these charts:
Do they resemble downtrends? Or do they look like uptrends… or healthy consolidations within ongoing uptrends?
Nothing here says “short me.”
Small-cap Technology (PSCT) just closed at new all-time highs. Industrials (PSCI) are pushing right up against theirs.
Financials (PSCF) and Consumer Discretionary (PSCD) are carving out massive bases that look ready to resolve higher.
And then there’s Healthcare, which, at the small-cap level, is basically Biotech. Small-cap Healthcare makes up more than 16% of the Russell 2000, the third-largest weighting in the entire index.
If you looked at my TrendLabs portfolio over the past few months, you’d swear I was running clinical trials in my basement. It’s been Biotech after Biotech after biotech.
But I’m no scientist, just a trend follower listening to what price keeps telling me.
Here’s small-cap Healthcare (PSCH) closing at its highest level since January, with Biotech (XBI) simultaneously hitting its highest level since 2021:
They move almost step for step, and right now Biotech is acting like the engine – and the leading indicator – for the whole group.
Tech, Industrials, Financials, Consumer Discretionary, and Healthcare together make up 75% of the Russell 2000.
The rest is Real Estate (6%), Energy (4%), Materials (4%), Utilities (3%), Staples (2%), and Communications (2%).
None of those look bearish either. Small-cap Materials look fantastic. And small-cap Energy is finally waking up.
This is the weight-of-the-evidence approach.
No fancy math. No magical oscillator. No algorithm needed.
The weight of the evidence is there for anyone who wants to look.
If you take the time to go through the charts, the story becomes pretty clear: strength, not weakness.
Small caps are doing their job. All we have to do is pay attention.
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2026 Forecasts Slide to $62 as Oversupply Clouds Outlook
– The oil markets are increasingly forming a consensus view on 2026 prices, with a Reuters survey of analysts and economists yielding a $62 per barrel average for next year, a whopping $10 per barrel lower than their initial 2026 predictions.
– The IEA’s expectations of a 4.2 million b/d oversupply are the most extreme outlook, perhaps overtly biased; however, even the most conservative estimate puts the total stock-build in 2026 at 0.5 million b/d.
– US shale output starting to decline next year – with WTI projected to average $59 per barrel, some $3-4 below the breakeven cost of a new Permian well – should put a floor under prices, so steeper price slumps are considered less likely.
– High freight costs have so far restricted the flood of Atlantic Basin barrels into Asia; however, with the Brent-Dubai EFS spread now trading negative, it is only a matter of time before easing freight costs open up those floodgates.
– ICE Brent front-month futures have averaged $68.80 per barrel in January-November 2025, a more than $11 per barrel drop compared to the 2024 average.
Market Movers
– US oil major Chevron (NYSE:CVX) will farm into two oil and gas exploration blocks in Nigeria’s deepwater operated by France’s TotalEnergies (NYSE:TTE), covering 2,000 km2 in the West Delta Basin.
– US pipeline operator Targa Resources (NYSE:TRGP) agreed to purchase Stakeholder Midstream for $1.25 billion in an all-cash transaction, boosting its natural gas processing portfolio.
– UK energy firm BP (NYSE:BP) has fully restarted its Olympic Pipeline system connecting the northwestern states of the US, following an almost month-long halt due to a leak.
– US oil major ExxonMobil (NYSE:XOM) has been approached by Iraqi authorities to express its interest in buying Lukoil’s 75% stake in the West Qurna-2 project, having only divested its equity in the neighbouring West Qurna-1 two years ago.
– Gold-focused mining giant Barrick Mining (NYSE:B) is considering an initial public offering of its North American gold assets, moving towards a spin-off of its Nevada gold mines under pressure from activist investor Elliott Investment Management.
Tuesday, December 2, 2025
The disappointing tug-of-war between oil doomers that anticipated a rapid return of Russian supply to markets after a quick Russia-Ukraine peace deal and the remaining oil bulls expecting military action in Venezuela has ultimately led to November going down as one of the most boring months in recent history, with ICE Brent trading within a $3-per-barrel trading range all month ($62.48 to $65.16). As the OPEC+ meeting brought exactly what the markets expected, all eyes are now on the Witkoff-led shuttle diplomacy between Moscow and Kyiv that could tilt the balance in December.
OPEC+ Rolls Over December Quotas. As assumed, OPEC+ members agreed to keep production levels unchanged for Q1 2026 as the group acknowledged oversupply risks amidst slackening demand, whilst also approving an internal mechanism to assess countries’ production capacity for 2027.
Henry Hub Hits 3-Year High on LNG Demand. US natural gas futures jumped to a 35-month high this week, at $4.9 per MMbtu, as the country’s feedgas demand continues to climb after a record 18.2 Bcf/d in November, with forecasts of below-average temperatures adding to the bullish sentiment.
Copper Booms as China Announces Smelting Cuts. Copper prices in China, traded on the Shanghai Futures Exchange, rose to an all-time high of ¥89,650 per metric tonne ($12,650/mt) after CSPT, one of the country’s largest smelters, agreed to cut production by more than 10% in 2026.
CPC Resumes Loading After Drone Attack. The Caspian Pipeline Consortium, Kazakhstan’s main export conduit, has resumed oil loadings on Monday after a Nov 29 Ukrainian drone attack damaged its single-point mooring No.2, however, shipments are currently only running at 50% capacity.
UK Pulls Out of Key African LNG Project. The British government has pulled its $1.15 billion financial backing for the TotalEnergies-operated (NYSE:TTE) Mozambique LNG project, a month after the plant’s 4-year force majeure was lifted, citing high security risks and shifting government priorities.
Gunvor Founder Quits Global Trader. Geneva-based commodities trader Gunvor announced that its co-founder and majority owner, Torbjorn Tornqvist, will retire as its chief executive and sell his stake after US allegations of him being a ‘Kremlin puppet’, launching a ‘definitive reset’ for the company.
Senegal Struggles to Contain Tanker Leak. The African country of Senegal is scrambling to prevent an oil leak from the Mersin oil products tanker, attacked last week in what Moscow alleges was a Ukraine-orchestrated drone attack, as the blasts resulted in seawater ingress into the engine room.
Elliott Gets the Final Approval for Citgo Deal. A Delaware court authorized the sales of shares in PDVSA-owned refining giant Citgo Petroleum to Amber Energy, an arm of activist investor Elliott Investment Management, for $5.9 billion, the last legal step in a two-year auctioning process.
Venezuela Warns of US Eyeing Its Reserves. Venezuela’s President Nicolas Maduro has accused the Trump administration of seeking to take over the country’s 300-billion-barrel oil reserves after imposing an airspace blockade on November 29, appealing to OPEC members for support.
Taiwan Doubles Down on LNG Usage. Taiwan published official energy consumption statistics for October, showing that LNG accounted for 53% of the country’s power generation mix for the first time ever, with Taipei boosting gas imports as it shut down its last nuclear reactor in Maanshan.
Black Sea Insurance Rates Soar on Drone Strikes. Ukraine’s drone strikes on tankers carrying Russian oil and dry bulk goods, with two confirmed hits in Turkish waters, have lifted insurance rates in the Black Sea as Russian loadings now wield a rate of 0.8% of ship value compared to 0.6% last week.
Canada Delays Decision on TMX Asset Sale. Canada’s Carney government stated that it would only look at selling equity in the state-run $24 billion Trans Mountain oil pipeline after it is fully utilized as tariff toll disputes are still keeping throughput rates at 75% of nameplate capacity.
China Pitches Iron Ore Expansion for Miners. China’s Iron and Steel Association has urged domestic mining companies to expedite iron ore mining projects in the country as its import dependence has been soaring, taking in more than 1 billion tonnes last year or 70% of its overall requirements.
jog on
duc
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