The fact that the US government's insolvency has now finally been averted is being well received by the market. The fact that inflation in Europe is falling significantly is also going down well. Corporate bonds remain popular, even those with a remaining term of ten years.
June 2, 2023 FRANKFURT (Frankfurt Stock Exchange). Inflation rates have fallen significantly, in the U.S., but now also in Europe. That has caused yields to fall. "At 6.1 percent, the inflation rate in the euro area was still very high in May, but significantly lower than expected," notes bond analyst Hauke Siemßen of Commerzbank. In the U.S., the inflation rate had already fallen to 5 percent and 4.9 percent in March and April, respectively. "Inflation rates have caused yields to fall," Rainer Petz of Oddo BHF also says. "The market is now expecting a pause in interest rates for the U.S."
The yield on 10-year Bunds is at 2.28 percent at midday Friday, down from 2.51 percent a week ago. Short maturities also moved lower. The yield curve remains inverted, meaning short maturities have higher interest rates than long maturities.
Otherwise, the hang-up over the US debt ceiling continued this week - and weighed on the markets. Now the debt dispute has been settled: After the House of Representatives, the Senate also agreed to a temporary suspension of the statutory debt ceiling. The government's default has thus been averted. "The market was wavering between risk-off and risk-on, now risk-on applies," reports Tim Oechsner, who trades bonds for Steubing AG.
Oechsner
"Fed officials have hinted at interest rate pause".
With the debt dispute issue out of the way, monetary policy is back in focus. The Fed and ECB central bank meetings are scheduled for the week after next. "Recently, some Fed representatives had hinted at a pause in the rate hike cycle," reports analyst Ralf Umlauf of Helaba. Much would depend on the U.S. labor market report due for publication today. The figures are expected at 14:30 our time.
For the euro zone, a further interest rate step of a quarter percentage point is expected. "There are no clear signs that core inflation has peaked," ECB President Lagarde said yesterday (Thursday) at the Savings Banks Day in Hanover. She said the ECB still has a long way to go to bring interest rates to a sufficiently restrictive level.
Popular Grenke bond
In corporate bond trading, Walter Ludwig Wertpapierhandelsbank is seeing a lot of activity in the new Grenke bond, which matures in 2026 and offers 6.75 percent (XS2630524986). "We're seeing quite a bit of buying there," reports Gregor Daniel. There is also a lot of buying in the Nestlé bond due 2026 with a coupon of 0 percent, which currently yields 3.09 percent (XS2350621863).
Daniel
Oechsner reports good sales for bonds issued by Mercedes-Benz (DE000A3LH6T7), Robert Bosch (XS2629470506), Deutsche Bahn (XS2624017070), Bayer (XS2630111719, XS2630112014) and Continental (XS2630117328). These mature between 2026 and 2033 and yield up to 4.3 percent. The new Porsche bonds also continue to see a lot of turnover - in both directions (XS2615940215).
Still under pressure are real estate bonds, though not all. Commercial real estate company Aroundtown is now taking advantage of the low prices and is making a buyback offer to the creditors of various bonds. Bonds maturing in 2025, 2026 and 2027 are affected, such as those maturing in 2027 (XS1715306012) or 2025 (XS2023872174).
Sixt with new bond
Today, rental car provider Sixt is also coming to the market with a new bond. Plans call for 300 million euros with a maturity of four years and a denomination of 1,000 euros, as Petz of Oddo BHF explains. "The coupon has not yet been determined, but is expected to be over 5 percent."
by: Anna-Maria Borse, June 2 2023, © Deutsche Börse AG
Anna-Maria Borse is a finance and economics editor specializing in financial markets/stock markets and economic topics.
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