The Dutch central bank acknowledges risks to interest rates linked to the 1 January 2026 transition of Dutch pension funds, but also sees mitigants to prevent market stress. The 10s30s has more room to steepen from a structural perspective, but we don't fully discount the probability of seeing some flattening in January
We are increasingly confident that around €600bn of assets will transition on 1 January 2026, bringing about significant flows in longer-dated bonds and swaps. Markets are closely watching, with 10s30s steepening on headlines. Credit should benefit from the transition, with most flow funds only coming in in after 1 Januarya
Recent headlines from France offer cautious optimism, with markets showing unexpected resilience despite domestic turmoil and broader uncertainties like the US shutdown. In European bonds, recouping the foreign investor shares after QE is not yet complete, although it can be a source of volatility
Markets were spent most of the overnight session reacting to the implementation of tariffs by the US. However, news of a possible reversal late in the session saw reversals.
The DXY fell as implications of tariffs on the US economy are considered. The euro outperformed rising to a multi-month high following the announcement of a defence fund in Germany.
An increase in risk sentiment saw bond yields jump while equities finished lower.
The fundamental problem for Indonesia remains weak growth. This continues to be reflected best in the chart of declining nominal GDP growth, as previous discussed here (see GREED & fear - Powell as party pooper, 19 December 2024), whereas real GDP growth has been extraordinarily stable hovering around 5% for the past 11 years, excluding the Covid period (see Exhibit 21). Nominal GDP growth slowed to 6.0% last year, down from 15.4% in 2022 and 15% in 2010.
A drop in consumer sentiment brought fresh concerns about the US economic growth. Most major equity indices sold off and government bonds rallied, with the 10Y US Treasury yield dropping 11bp to 4.29%. Market digested news that Ukraine is going to sign a minerals deal with the US, and a confirmation from the US president that US tariffs on Canadian and Mexican imports will go up next week.
