The bond market has quietly faded into the background.
After years of volatility, rate shock, and endless macro debates, bonds have become… boring. Flat. Forgotten. Barely part of the daily market conversation anymore.
And that’s exactly why they matter.
Because if there’s one thing I’ve learned about the bond market over the years, it’s this: It never stays boring forever.
Volatility doesn’t disappear – it gets compressed. And when that pressure finally releases, it tends to do so at the worst possible time for complacent investors.
So while stocks have been thriving in this low-drama, low-volatility rate environment, it’s worth asking an uncomfortable question as we look ahead to 2026:
What happens if bonds wake up?
Not tomorrow. Not necessarily in Q1. But at some point. And when they do, the ripple effects through equities are not something we want to ignore.
They’re something we want to understand, anticipate, and be prepared for.
Because as much as people love to argue about whether stocks prefer higher rates or lower rates, what they really love is something far simpler than that…
A boring bond market.
Stocks Like a Boring Bond Market
You’ll hear plenty of debate about what the stock market “wants” from interest rates.
Some will tell you stocks want lower rates: cheaper money, easier borrowing, faster growth.
Others argue stocks prefer higher rates: a sign of economic strength and stability.
Then come the justifications. Inflation. Deflation. Disinflation. Stagflation. Everyone suddenly becomes a “flation” expert when the bond market enters the conversation.
But in my experience – and, more importantly, based on what we’ve actually seen – the stock market doesn’t care as much about the direction of rates.
What it cares about is stability.
Stocks perform best when bonds don’t do much of anything at all. And if rates do move, that’s fine too – as long as they move slowly.
That’s exactly the environment we’ve had over the past few years:
Bond volatility has been muted, interest rates have been largely range-bound, and the result has been some of the strongest equity returns in history.
And this isn’t just a handful of mega-cap stocks doing the heavy lifting.
On an equally weighted basis – stripping out the influence of the largest names – U.S. equities have been quietly compounding at an impressive pace.
This year alone, the equally weighted S&P 500 is up 12%, the Nasdaq 100 is up 15%, and the Dow Jones Industrial Average is up 16%.
Last year? The equally weighted S&P 500 gained 12%, the Nasdaq 100 rose 7%, and the Dow climbed 13%.
In 2023, the equally weighted S&P 500 was up 13%, the Nasdaq 100 surged 33%, and the Dow gained 15%.
Different years. Different leadership. Same underlying theme.
The stock market loves a boring bond market. Rates have gone nowhere, volatility has stayed contained, and equities have been the clear beneficiaries.
What If Bonds Are Not Boring?
Here’s a simple way to see what’s happening beneath the surface in the bond market.
The chart below shows the U.S. Treasury Bond ETF (TLT) alongside a weekly Bollinger Bandwidth reading. Volatility in bonds is as compressed as it’s been at any point since 2018:
That matters. Because volatility doesn’t trend. It reverts to the mean.
Periods of extreme calm don’t last forever. They resolve with expansion. Always have. Always will. The only unknown is when.
That doesn’t mean this has to happen tomorrow. It doesn’t even mean it has to happen in Q1. But the longer volatility stays pinned, the more violent the eventual move tends to be.
And as we look ahead with the Midterm scaries looming, it’s worth thinking through what 2026 might look like if bonds stop behaving themselves.
Just because bonds haven’t been the center of the conversation lately doesn’t mean they’ve stopped mattering. Quite the opposite.
The bond market is far larger than the stock market. It sets the price of money for everything else. And stocks have enjoyed an incredible run precisely because bonds have been quiet.
That’s the setup.
If bonds remain boring, equities can keep doing what they’ve been doing. But if bond volatility expands – if rates start moving faster and less predictably – the environment for stocks changes. Quickly.
I don’t know exactly when bonds will wake up. I don’t need to.
All I need to know is this: Volatility is compressed. Mean reversion is undefeated. And markets rarely give you a warning shot.
I have a funny feeling the bond market won’t be ignored in 2026.
And when it finally decides to matter again, everyone will suddenly remember why it always did.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs