Anyone betting on an imminent cut in key interest rates was disappointed once again this week. Yields rose significantly. Big names such as Eon and Porsche are popular in corporate bond trading. Intrum bonds, on the other hand, plummeted.
15. March 2024 FRANKFURT (Frankfurt Stock Exchange). Will the first interest rate cut in the USA not come as quickly as hoped? In any case, the US producer prices published yesterday (Thursday) show continued inflationary pressure. "The data, which was well above expectations, shook the markets out of their lethargy", explains Deutsche Bank. "Market players, who had been looking forward to interest rate cuts by the Fed in the near future, were put to the test."
Yields rose noticeably. On Friday morning, ten-year German government bonds were yielding 2.44 percent, compared to just 2.27 percent a week ago. Ten-year US Treasuries are currently yielding 4.28 percent after 4.07 percent last Friday.
US Federal Reserve meeting next week: "No rate cut expected"
Now it's time to wait for the US Federal Reserve meeting next Wednesday. "The Fed is generally not expected to cut interest rates, so there is no potential for disappointment here," says bond analyst Hauke Siemßen from Commerzbank. However, the central bankers could revise their interest rate expectations upwards in the new interest rate forecasts - the "dot plots". The US Federal Reserve and the ECB are still expected to cut interest rates for the first time in June, but with a lower probability than before.
Interest rate hikes for Europe's peripheral countries are no longer a major issue. Ulrich Wortberg from Helaba points to the continued narrowing of peripheral spreads as a result of the general increase in risk appetite. While yields on German government bonds have risen recently, Italian yields have tended to fall. "The yield spread in the ten-year segment has narrowed to below 120 basis points at times, which was last the case in November 2021." Bonds from other EMU states are also currently performing significantly better than German government bonds.
In times of higher interest rates, bonds issued by federal states are also popular alongside traditional government bonds. Gregor Daniel from Walter Ludwig Wertpapierhandelsbank is seeing repeated purchases of the Rhineland-Palatinate floater issued last week. It matures in 2026 and offers a coupon of 3.928 percent (DE000RLP1460).
Eon and Porsche wanted
According to Daniel, the fact that the rating agency Standard & Poor's has upgraded the energy group Eon to BBB+ has led to further purchases of the already popular Eon bond with a 3.5 percent coupon maturing in 2028 (XS2574873266). Last year's Porsche Automobil Holding bond with a coupon of 4.25 percent until 2030 (XS2643320109) was well received, as Agon Alihajdari from Steubing AG reports. The US dollar bond from John Deere with 4.7 percent until 2039 (US24422EWZ86) is also still in demand.
Meanwhile, Daniel reports buying and selling for the relatively new bond of the Westphalian provider of health and beauty products LR Health & Beauty with 11.432 percent and a term to 2028 (NO0013149658). "Apparently some people are disappointed and are getting out, others are using the low prices to get in."
Intrum: Restructuring of the bonds?
But there is also bad news: bonds issued by the Swedish debt collection company Intrum plummeted yesterday, Thursday, as Daniel notes. "There is speculation about over-indebtedness." Intrum itself reported that it had contacted a consultancy firm to examine various options. A restructuring of the bonds is also being discussed. The bond with a 3 percent coupon maturing in 2027 (XS2052216111), which fell from 64 percent to around 52 percent, was affected by the price decline. The three other bonds maturing in 2025, 2026 and 2028 (XS2211136168>, XS2034925375, XS2566291865) also lost ground.
Meanwhile, shares in Deutsche Pfandbriefbank (Depfa) continued to recover, as Rainer Petz from Oddo BHF reports. Depfa announced last week that although it would not be paying a dividend, it intended to service the hybrid bond (XS1808862657). The Depfa bonds traded at Oddo (XS1637926137, DE000A2DASM5) are also benefiting.
By Anna-Maria Borse, 15. March, 2024 © Deutsche Börse AG
Anna-Maria Borse is a financial and business editor specializing in the financial market/stock exchange and economic topics.
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