The mixture of geopolitical risks and renewed interest rate fears is weighing on the stock and bond markets, and yields have risen sharply this week. Still popular: corporate bonds with foreseeable maturities and from "good" addresses.
20 October 2023. FRANKFURT (Börse Frankfurt). The situation was already difficult before, due to high interest rates and the poorly performing economy. But now the Middle East conflict has added another factor of uncertainty. "The geopolitical news currently makes the traffic light appear dark yellow," explains Tim Oechsner of Steubing AG. "It's all very volatile," comments Rainer Petz of Oddo BHF.
However, federal and U.S. government bonds came under selling pressure, as Arthur Brunner of ICF Bank observes. "The 'safe havens' are not in demand for once." Yields rose accordingly. Ten-year Bunds are yielding 2.90 percent again Friday morning, up from 2.75 percent a week ago. This means that the yield is not far from the twelve-year high of just over three percent marked at the beginning of October. Ten-year U.S. government bonds yielded 5 percent at their peak this week, the most since 2007, and are currently still yielding 4.93 percent.
Brunner
ECB meeting: probably no interest rate hike this time
In addition to the Middle East and Ukraine wars, attention continues to focus on central banks. Next week, the ECB Governing Council will meet, this time in Athens. Another interest rate hike is not expected. However, Commerzbank believes it will be about an earlier end to reinvestments from the PEPP bond portfolio. "An earlier end to PEPP reinvestments would put additional pressure on peripheral government bonds in particular," says analyst Hauke Siemßen.
In the U.S., Federal Reserve Chairman Jerome Powell's comments were made yesterday (Thursday). Before the Economic Club in New York, he indicated that the key interest rate will not be changed at the next meeting. However, he said the option of another rate hike remains. "It looks like interest rates are likely to remain unchanged at the Nov. 1 meeting," he said. At least that's how market players interpreted it," Deutsche Bank analysts explain.
Corporate bonds: Familiar names draw
Corporate bond trading is subdued, according to Beate Mägerle of Walter Ludwig Wertpapierhandelsbank. "Given the news situation, that's not surprising." Still, she says, some corporate bonds are doing well, such as those from Continental (XS2672452237), VW (XS2374595127), Mercedes (DE000A2R9ZU9), Porsche Automobil (XS2643320018) and ThyssenKrupp (<DE000A2TEDB8>). They mature between 2024 and 2027 and currently offer yields of between 3.8 percent and - in the case of ThyssenKrupp - just under 5 percent.
Oechsner says corporate bonds from well-known names, with short and medium maturities and 1,000-euro denominations, are attracting investors. "The yield must be between 4 and 5 percent." The securities would be bought as a "yield pick-up" and held until final maturity. He also cites Porsche automotive bonds (XS2643320018, XS2615940215, XS2643320109) as examples. In addition, the U.S. dollar bond of agricultural equipment manufacturer John Deere with a 2.65 percent coupon and maturity in June 2024 (US24422ETT63) remains popular, Brunner reports.
Oechsner
The Grounds recovers, PHM increase successful
The bond of The Grounds Real Estate Development (DE000A3H3FH2), which had previously lost ground, recovered significantly. "The Grounds has found an investor," explains Brunner. The increase in PHM Group Holding Oy's 11.378 percent coupon bond due 2026 (<FI4000541685Y) was well received, he said. Following the announcement of a new bond by automotive supplier Neue ZWL Zahnradwerk Leipzig (DE000A351XF8), the 2021 bond issue (DE000A3MP5K7) was also bought. "At the current price of 87.5 percent and yield of 11 percent, it is cheaper than the new bond," notes Brunner. The new one offers 9.5 percent through 2028, and can be subscribed to starting Oct. 30.
The bond of the broker pool company Jung, DMS & Cie. Pool GmbH (DE000A3514Q0) with maturity in 2028 and a coupon of between 6.75 and 7.25 percent is also available for subscription. The subscription period runs until October 30.
Read more: https://www.boerse-frankfurt.de/jung-dms-cie-pool-gmbh
by Anna-Maria Borse, 20 October 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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