Daily Commentary

MarketMinder’s View: Emerging Markets (EM) sovereign bonds typically pay investors yields well in excess of US Treasurys to compensate investors for a greater risk of default tied to government instability, fiscal issues, inflation risk and more, which all exceed the US. But today, that excess yield has shrunk dramatically. “The extra yield investors demand to hold EM sovereign dollar bonds instead of Treasuries has fallen to about 2.5 percentage points, according to JPMorgan Chase & Co.’s measure of risk premium. It’s [sic] lowest level since January 2013 and almost 5 percentage points tighter than the spread witnessed at the height of the Covid pandemic five years ago.” This echoes a shrinking in risk premiums between corporate bonds and Treasurys—including high-yield debt. Two things to note about this for investors: One, despite the hype here about fiscal balances and growth rates being pluses for EM bonds, it makes those issues significantly less attractive than comparable Treasurys. Two, it shows sentiment is quite warm. In the event of a downturn, those factors could reverse—and if they do, EM yields would likely rise (and EM bond prices fall), making them a suboptimal choice for investors who hold some bonds to mitigate equity volatility.

MarketMinder’s View: Here are the latest data confirming the war against hot inflation—the rate of change in prices economywide—is over. We won! “German inflation fell in the last month of 2025, tracking a decline in French consumer prices and reinforcing the European Central Bank’s view that the eurozone remains in a ‘good place.’ German consumer prices were up 2.0% in December on year, compared with a 2.6% rise in the previous month, EU-harmonized figures published by statistics agency Destatis showed Tuesday. In France, harmonized inflation fell to 0.7% from 0.8% in November, according to statistics agency Insee.” Now, this dives into possible monetary policy shifts (or the lack thereof, given that “good place”), but the takeaway here, in our view, is that the ECB has cut rates eight times since the high in 2024. Many saw this as premature, clinging to allegedly “stubborn” inflation rates. That narrative still swirls in America. But Europe is showing you a preview—inflation has continued to cool despite rate cuts. Most inflation trends are global, so we figure you should take note of this if you still fret US inflation running above the Fed’s 2% target. Yes, yes, we know prices are still high. But prices result from inflation, they don’t necessarily indicate hot inflation is still happening.

MarketMinder’s View: No, the UK’s Labour government isn’t preparing legislation that would literally move the British Isles further southeast, narrowing the English Channel. This refers to draft legislation that officials familiar with the matter say aims to “reset” the Brexit arrangement with the bloc, seeking “alignment” on issues ranging from “…food standards, animal welfare, pesticide use, the EU’s electricity market and carbon emissions trading. … The bill would create a new framework for the U.K. government and devolved administrations to adopt new EU laws when they are passed in Brussels. It raises the prospect that new EU laws in agreed areas will effectively transfer to the U.K. statute book automatically, with Britain retaining the power to veto them in specific cases. U.K. officials stress that the exact form the powers will take has not yet been decided.” We don’t think it takes a genius to know this legislation will likely prove highly controversial, if it ever comes to light. Even as we approach a decade since the Brexit vote and six years since the UK left the EU, the matter continues to color commentary and spur much debate. The official quoted here alleges this legislation would boost UK economic output by £9 billion through 2040. This is … not a big sum and not worth overthinking. And, it is small for such a potentially controversial measure, so we have our doubts this will come to fruition. Here again we may be looking at the Labour government floating trial balloons to see how the public and Parliament react.