Central bank developments have been dominated by the escalation of tensions between Jerome Powell and the Trump administration, that may be seen as a challenge to Federal Reserve independence. Fed Chair Jerome Powell stated that the Department of Justice had issued a subpoena related to his June Senate testimony on the renovation of Federal Reserve buildings. Powell warned the move risks politicizing monetary policy and framed it as an attempt to influence rate-setting decisions.

The central bankers’ community has voiced support for central bank’s independence in setting monetary policy. Political reactions also emerged from within the Senate Republicans’ rank and the episode also raised the likelihood that Powell could remain at the Fed as one of the Board members beyond his chair term to defend Fed’s independence from within. Tensions between the Fed and the Trump administration continue to rise ahead of the end of Jerome Powell’s term as Chair and of the Supreme Court’s decision on Lisa Cook due on January 21^st.

On policy, some Fed officials struck a cautious tone. San Francisco Fed President Mary Daly described the Fed as being in a “fine-tuning” phase, while Atlanta Fed President Raphael Bostic stressed the need to keep inflation firmly on track toward 2%. Future markets are currently pricing two 25bp rate cuts by the end of the year.

Elsewhere, the Bank of Israel cut rates by 25bp, UK inflation expectations eased, and ECB policymakers signaled stability ahead even if markets priced in a slightly higher probability of an ECB rate cut this year following lower-than-expected inflation data for December. 

Credit

Credit markets opened 2026 on an exceptionally strong footing, with total returns in both U.S. and European credit across investment grade and high yield turning higher of between +0.4% to +0.5% last week. Credit spreads have compressed further, while long term government yields drifting lower — collectively the best start to a year since 2010.

The new year issuance boom came as markets largely shrugged off the dramatic U.S. capture of Venezuelan President Nicolas Maduro given the solid corporate credit fundamentals.

U.S. investment grade issuance exceeded $95 billion in the first full week of January, across 55 issuers — the busiest weekly start on record and the highest volume since 2020, reflecting ample market liquidity and very strong investor demand.

Corporates were able to tap markets with multiple times oversubscription, with the new 5-year Air France-KLM nearing six times oversubscribed.

Precious metals such as gold, silver and platinum have extended the gains into 2026 amid geopolitical risks. Glencore and Rio Tinto resumed talks on a potential mega merger to create the world’s largest mining company. Glencore credit spreads could potentially tighten towards Rio Tinto’s if the merger materializes.

2026 is set to bring downward pressure on oil prices. Average gasoline prices in the US have now fallen to just above $2.80, the lowest since early 2021, supportive for U.S. consumers.

In Europe, credit spreads — though tight — now appear less stretched relative to U.S. peers, and EUR investment-grade inflows continue. 2026 started with more inflow into medium term funds than shorter term funds. With the high yield, inflows have been more prevalent towards EUR-focused high yield funds than global high yield and U.S. high yield funds.

Overall, primary issuance has been met with strong investor demand, with coupon carry remaining a central pillar of investment strategy.