Global yields have risen again this week. The main trigger is the lowering of the key interest rate in the USA, which is now expected later. Many bonds are popular, such as those from Sixt, Eon and Symrise.
26 April 2024. FRANKFURT (Börse Frankfurt). Longer-term yields have reached new annual highs this week. This is because interest rate cuts in the US are increasingly becoming a distant prospect. “It is becoming increasingly unlikely that the Fed will cut interest rates at all this year,” notes Arthur Brunner, who trades bonds for ICF Bank. Although an initial interest rate cut is expected for the eurozone in June, it does not look like there will be any further cuts soon.
Contradictory signals came from the USA this week: US economic growth in the first quarter was lower than expected, which would argue for a cut in key interest rates. However, the GDP price deflator, which is closely monitored by the US Federal Reserve, showed a return to higher inflation in the first quarter. An interest rate cut would therefore be premature. “Market participants therefore see this as confirmation of their assessment that the Fed is probably in no hurry to cut interest rates for the first time,” commented analyst Ralf Umlauf from Helaba.
Waiting for Wednesday: What will Powell say?
He does not expect an interest rate cut at the Fed meeting next Wednesday. “A change in monetary policy is unlikely, but it will be important to see how the statement turns out and how Fed Chairman Powell deals with the issue of interest rate cuts,” says Umlauf. Yields on ten-year US government bonds are currently at 4.69%, their highest level since the end of October.
For the eurozone, the expectation of a first interest rate cut on June 6 has solidified. However, it is increasingly questionable whether it will continue to fall quickly afterwards. As a result, the yield on ten-year German government bonds climbed from just under 2.5 percent a week ago to a peak of 2.64 percent yesterday (Thursday) - the highest level since November. On Friday morning it was still 2.60 percent.
“Secure the high interest rate level”
According to Brunner, US dollar bonds are in demand in anticipation of a stable or strong US dollar due to the high interest rates in the longer term. “Investors are securing the high level of interest rates with very short, but also very long maturities,” reports Tim Oechsner from Steubing AG. For example, a US government bond maturing this July (US9128282N91) and extreme long-term bonds maturing in 2053 (US912810TT51) were well received.
Also in demand: Italian bonds, such as those maturing in 2044 (IT0004923998) or 2029 (IT0001278511), as Ochsner notes. Brunner also sees great interest in Italian long-dated bonds, for example those maturing in 2053 (IT0005534141).
Gregor Daniel from Walter Ludwig Wertpapierhandelsbank is also registering buying interest in a bond from the European Investment Bank EIB maturing in 2027 in Mexican pesos with an 8 percent coupon (XS1547492410). “The currency has been very weak for several weeks, and the low exchange rate is obviously being used to get in.”
“The usual perennial favorites”, but also mid-cap bonds
According to Daniel, bonds from car rental company Sixt (DE000A351WB9) as well as the Eon long-term bond issued in March (XS2791960664) and a Symrise bond (DE000SYM7720) are still popular in corporate bond trading. “The Symrise purchases are presumably related to the company's figures published yesterday,” reports Daniel.
“They are the usual perennial favorites,” explains Oechsner with a view to securities from Continental (XS2630117328), Porsche SE (XS2643320109, XS2615940215), Mercedes (DE000A3LH6T7) and Siemens (DE000A1UDWN5), but also a US dollar bond from Apple (US037833DU14).
SME bonds, including in Nordic bond format, also have many fans. According to Brunner, this applies, for example, to the bond issued a few weeks ago by SLR Group, a supplier to the construction machinery and commercial vehicle industry, with an 11.73 coupon until 2027 (NO0013177949).
Continued brisk demand for Karlsberg newcomer
Karlsberg Brauerei's new bond (NO0013168005) was already extremely popular during the subscription phase. The paper was also well received in trading. “It went up immediately after the subscription,” reports Daniel. The five-year bond with a coupon of 6 percent is currently trading at 102.85 percent.
Due to high demand, ABO Wind AG has already reached the target volume of the new bond (DE000A3829F5) in the amount of 50 million euros, as the company reports. The interest rate range has been narrowed to 7.5 to 8 percent, compared to 7 to 8 percent previously. The final interest rate for the bond maturing in 2029 is to be determined at the end of the offer period, which is scheduled to run until May 2. The Wiesbaden-based company is a project developer for renewable energy plants.
From Anna-Maria Borse, 26 April 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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