Bonds: key interest rate falls, bond interest rate rises

06 June 2025 FRANKFURT (Börse Frankfurt). The meeting of the European Central Bank (ECB) on Thursday was the dominant topic on the bond markets this week. As is so often the case, the subsequent press conference was even more in focus than the actual interest rate decision. The ECB's eighth interest rate cut within a year was no longer a surprise. The reduction in the deposit rate by 0.25 percentage points to 2.0% had already been priced in by the markets. Nevertheless, there were relatively significant price losses on government bonds yesterday afternoon.

Euro-Bund future under pressure

“The suggestion that monetary policy is now well positioned to deal with global uncertainty has disappointed expectations of interest rate cuts,” explains Ralf Umlauf from Helaba. The yield on ten-year Bunds rose from 2.48 percent to just under 2.60 percent within three hours. At midday on Friday it stood at 2.55 percent, compared with 2.53 percent a week ago. As yields rose, the Euro-Bund future came under pressure. The September contract fell to a low of 130.12 points on Thursday, before recovering slightly to the current 130.70 points. According to Umlauf, the 55-day average at 130.13 points offers support before the May lows at 129.30 and 128.97 points could come to the attention of market participants.

Further interest rate hikes still conceivable

At the press conference, ECB President Christine Lagardes emphasized that inflation in the eurozone is currently close to the Governing Council's medium-term target of 2.0%, also thanks to lower energy prices and a stronger euro. Many players on the stock market read from this that the monetary easing cycle was coming to an end. “This has already surprised the market,” says Tim Oechsner from Steubing AG. Although the bond trader continues to expect two further interest rate cuts, “the ECB gave us little indication as to their scope and timing”. Christian Reicherter from DZ Bank is also not expecting the interest rate cut cycle to come to an end. “A further easing step after the summer break is still part of our interest rate forecast”.

US yields come back

In the USA, the non-farm payrolls are also an important event for the bond markets at the end of the week. Ilona Korsch from Hauck Aufhäuser Lampe assumes that these will be weaker than expected. In her opinion, the decline in private sector employment and the higher number of unemployment benefits could signal a lower number of new jobs created in May. The consensus here is for 126,000 jobs after 177,000 recently. Yields on ten-year US Treasuries fell slightly from 4.44% to 4.38% week-on-week. Thirty-year securities are yielding 4.87% after 4.97%.

Currency impact on USD bonds

According to Klaus Stopp from Baader Bank, the slight fall in yields partly reflects the economic uncertainty in the US. The trader reports some purchases of US government bonds (US91282CGM73) and (US912810SQ22), which are currently yielding significantly higher returns than comparable securities from the eurozone. However, Stopp points out the exchange rate risks associated with buying dollar bonds. “Investors should always have an opinion on the currency with these securities”. In recent weeks, the euro has risen significantly against the US dollar, which can have a negative impact on the performance of bonds.

Car bonds are bought

In the corporate bond segment, the “search for yield” continues. Stopp sees relatively high interest in issues from the automotive sector. “Over 80 percent of transactions in this segment were purchases”. Bonds from the two German car manufacturers Mercedes Benz (DE000A4EB2X2) and BMW (XS3075490188) were also ordered from Steubing AG and Walter Ludwig Wertpapierhandelsbank. Beate Mägerle also reported strong demand for bonds from E.On (XS2791960664) and Deutsche Post (XS3084418907). High turnover was also registered in a bond issued by Homann Holzwerkstoffe GmbH, which offers a yield of 7.6 percent until 2032 (NO0013536169). “There was both buying and selling interest here”.

By Thomas Koch, 6 June 2025, © Deutsche Börse AG