The week of the central banks brought a first surprise with the interest rate cut in Switzerland. The ECB and Fed are still keeping their feet still. Speculation about the timing and extent of any interest rate cuts is therefore continuing. Bonds from German electricity suppliers are being bought.
22 March 2024. FRANKFURT (Börse Frankfurt). Despite the recent increase in inflation data, the US Federal Reserve continues to expect three interest rate hikes by the end of the year. However, the number of committee members who expect fewer interest rate cuts has risen slightly compared to December. According to Tim Oechsner from Steubing AG, market expectations are unlikely to have changed as a result of the latest Fed meeting. The trader himself also assumes that the Fed will begin with the first of three interest rate cuts (25 basis points each) this year in June.
The influence of the US election date
Deka's economists make the same calculation. However, should the price data in March or April surprise on the upside again, they believe that the start date would be postponed to the second half of the year. Three steps in 2024 could then possibly be a tight squeeze. The editors of the online magazine "Wellenreiter Invest" also point out that the Fed does not usually make any interest rate changes shortly before or around the US election date, meaning that interest rate cuts in September and November are questionable. "Either the rate cuts will come earlier or they will not be implemented until December 2024," they conclude.
In the eurozone, the ECB also announced three interest rate cuts this week. The bond markets reacted quite calmly to this. According to Arthur Brunner from ICF Bank, market participants believe that interest rates will remain at a comparatively high level for some time to come despite the expected cuts. "The neutral interest rate targeted by the ECB is significantly higher than before the pandemic." Klaus Stopp from Baader Bank has registered an increase in demand, at least in the short-term segment. Good turnover was seen in German government bonds maturing within the next twelve months (DE0001104891 or DE0001102374).
Bonds from electricity suppliers are being bought
In the corporate bond segment, the new E.On bond (XS2791960664) issued at the beginning of the week was well received. Both Baader Bank and Walter Ludwig Wertpapierhandelsbank observed that investors made bold purchases. "Despite, or perhaps because of, the long term," noted their trader Gregor Daniel with regard to the security, which yields around four percent until 2044 and is offered in 1,000 euro denominations. Bonds from other players in the utilities sector (XS2584685031 from RWE or XS2558395351 from ENBW), which mature in 2029 and 2026 respectively, are also being purchased. Oechsner is also seeing brisk demand for another E.On bond maturing in 2031 (XS2747600018).
ICF Bank's clients, on the other hand, took up the Katjes International bond (NO0012888769), which matures in 2028 and currently yields 5.1%. There was also demand for the Hörmann Industries bond maturing in 2028 (NO0012938325). "The good figures were probably used as an opportunity to get in," Brunner suspected. The situation is different for the bond of the soccer club Gelsenkirchen-Schalke 04 (DE000A3MQS49), which matures in mid-2027, where the price fell from a good 92% to 81% over the week. "Not without reason", as the trader explains with reference to the sporting situation of the second division club and the requirements of the German Football Association. The potential yield on the bond has risen to a current yield of 12.7% as a result of the price slide.
Sales in Lufthansa and Volkswagen bonds
For Walter Ludwig Wertpapierhandelsbank, Daniel speaks of "mixed trading" and rather low turnover. He sees the greater volume among buyers, for example in bonds issued by Deutsche Telekom (XS1828032786) or voestalpine (AT0000A27LQ1). In contrast, there is a noticeable amount of selling in a Lufthansa bond (XS2049726990) or in one of the former "favorites", a Volkswagen bond maturing in 2026 (XS1893631769).
By Thomas Koch, 22 March 2024 © Deutsche Börse AG
Thomas Koch is a CEFA investment analyst, investment specialist for structured products and a certified certificate consultant. He has been a freelance journalist covering events on the capital markets since the beginning of 2006.
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