Sunset Market Commentary

Markets

US, EMU and UK yields today show a similar (tentative) bottoming pattern after a gradual, but protracted decline over the previous month. With no high profile data or event risk to drive intraday trading, nearby technical and/or psychological references are providing a point of reflection. A new rise in Japanese risk premia this morning maybe contributed to bond investors re-evaluating positions. Japanese yields jumped ( 30-y +7.6 bps) after a period of calm post the parliamentary elections. PM Takaichi recently was reported to ‘push’ the BoJ to be cautious on raising rates. Today, she nominated two new ‘dovish-labeled’ members to the BoJ board. Admittedly, the spill-overs to markets outside Japan were modest (US yield up 1-3 bps, EMU up +/- 1 bp, UK + 1-2 bps). Even so, in a broader perspective, some consolidation after this month’s bond rally makes sense. The US 2-yield since end last month eased from the 3.6 % area to test the October low (3.4% area) end last week. Similar story for the US 10-y yield declining from the 4.3% area to approach the 4% barrier (currently 4.05%). From a technical perspective, the move in UK yields was at least as significant, with the 2-y yield (near 3.60% from 3.77%) and the 10-y (4.33% from 4.6% area early this month) dropping below the 2025 lows. The Fed and the Bank of England are in somewhat of a similar position. Inflation is easing, but confirmation is needed for the both CB’s to further shave the policy rate towards a neutral level. Markets currently assess that it is mainly a matter of timing, not if. Softer labour market data also keep CB’s on alert to avoid unnecessary economic damage. Interestingly, EMU markets joined this broader move (EMU 2-y swap from 2.3% to 2.2%, 10-y from 2.9% to 2.75%) even as the ECB policy rate already trades at what is largely seen as a neutral level. The ECB guides that it is in a good place to assess incoming data and potential upcoming even risk. Still expected sub 2% headline inflation (January today confirmed at 1.7%) causes markets to err to the soft side (a bias we consider premature). The softening at the long end of the curve is a bit less evident. Fiscal risk premia, which often were a driver for curve steeping last year, for now moved a bit to the background. Recently, long term bonds (from time to time) again played a role as safe haven when geopolitical tensions and/or AI risk-off captured market headlines. This comes even as central banks also still have to make up their mind on how to react in case of e.g. higher unemployment due to AI productivity gains. A developing story, for sure. At least today, there was no reason for investors to add bonds due to safe haven considerations. After AI related uncertainty early this week, the EuroStoxx 50 (+0.85%) is setting a new all-time record (6168 area). US indices also open with gains of 0.3% (Dow) and 0.75% (Nasdaq), but haven’t returned to record levels yet. Nvidia results to be published after the US close this evening might be important in a market that is hyper-sensitive to AI-related news. Currency markets still are a bit disconnected for other markets. EUR/USD (1.1775) is holding a tight range in the 1.175/1.185 area. DXY gains marginally (97.95). A sustained break above 98.1 would (slightly) solidify the technical picture. The yen understandably underperforms (USD/JPY 156.7 from 155.9; EUR/JPY 184.55, from 183.55) as the PM Takaichi tries to ‘convince’ the BoJ on its ‘reflationist’ agenda.

News & Views

Czech producer prices fell by 0.7% M/M in January, faster than expected (-0.1%). On an annual basis, prices are 3% lower, coming from -2.1% Y/Y in December (and vs -2.4% Y/Y consensus). Prices of agricultural producers also decreased, by 1.6% M/M and by 5.8% Y/Y. Construction work prices were 0.3% M/M and 2.7% Y/Y higher and service producer prices in the business sphere decreased by 1% M/M to be up 3.6% Y/Y. Czech swap yields fell by 2 to 3 bps across the curve as money markets are still in doubt on the timing of the next rate cut by the Czech National Bank after the hawkish hold early February. The Czeck koruna is unnerved at 24.23.

A new analysis by Embuild Vlaanderen shows that the number of building permit applications for new homes and apartments in Flanders has dropped sharply since 2019. In 2025, only 11,727 applications were submitted—40% less than the nearly 19,600 applications in 2019. This decline continues a multi-year downward trend. The number of potential new housing units in these applications has also fallen significantly: from 73 776 units in 2019 to 41 157 units in 2025. Because not all applications are eventually approved or completed, the number of new homes that actually get built is much smaller. In 2025, according to Statistics Flanders, only 26,500 homes were effectively added. Embuild indicates that the housing shortage will intensify and that 600 000 additional homes will be needed by 2050.