No interest rate cut soon? The fact that US inflation is not falling as much as hoped has certainly spooked the markets this week - and caused yields to rise. Corporate bonds continue to do well, partly due to the lower prices.
12 April 2024. FRANKFURT (Börse Frankfurt). After a significant wave of selling, some calm returned to the bond markets at the weekend. The better-than-expected US consumer price figures for March had led to significant price losses this week - and caused yields to rise sharply. The yield on ten-year German government bonds climbed to 2.47%, while US government bonds with the same maturity reached 4.59%. Today, Friday, there will be a small countermovement in Germany: Bund yields fall again to 2.39 percent - roughly the level of the past two months.
"Although the month-on-month rise in inflation of 0.4 percent was only a tenth of a percentage point above estimates, it still caught investors on the wrong foot," notes bond market analyst Hauke Siemßen from Commerzbank. In contrast, the ECB meeting yesterday, Thursday, had no major impact. Deutsche Bank speaks of a "fairly non-event". As expected, the deposit rate remained at 4 percent. "Across the market, the unexpectedly high inflation data from the US on Wednesday is still having a major impact."
Futures markets price in late Fed move
Everything looks like the ECB will move ahead: For the ECB, the money futures markets are pricing in a first rate cut for June 6 with a probability of 87 percent, as reported by Deutsche Bank, for the US Federal Reserve for June 12 with a probability of only 25 percent.
In government bond trading, a lot is happening in US Treasuries, such as those maturing in 2025 (US912828Y792) and 2027 (US91282CFM82), as Tim Oechsner from Steubing AG reports. The bonds currently yield 4.9 and 4.7 percent.
"The buy side clearly prevails"
Corporate bonds are still in demand. "The buy side clearly predominates," reports Gregor Daniel from Walter Ludwig Wertpapierhandelsgesellschaft. Due to the price drop this week, old limit orders are also being executed. He sees purchases, for example, for a zero-coupon bond from Nestlé (XS2350621863) maturing in 2026 with a current yield of 3.1 percent. "This is now being rediscovered." The Grenke Finance bond maturing in fall 2025 is also still being bought a lot. It has seen a steady upward trend in recent months and is now yielding 4.06% (XS2078696866).
Oechsner reports good demand for bonds from the automotive industry such as Porsche (XS2615940215, XS2643320109), Daimler (DE000A2DADM7), Continental (XS2630117328) and VW (XS2694874533). These are due between 2025 and 2031, with yields currently between 3.3 and 3.8 percent. TUI bonds would also be well received (DE000A3E5KG2). Also in demand: long-term bonds, such as Allianz (DE000A1HG1L4) until 2043 and with a current yield of almost 5 percent, or EnBW until 2039 and 3.8 percent (XS0438844093). However, the minimum investment for the Allianz bond is 100,000 euros.
Uncertainty surrounding FCR
According to Daniel, the bond of FCR Immobilien (<DE000A2TSB16>), which matures on April 30, remains weak after the company had to postpone the presentation of its preliminary figures for 2023. The bond is currently trading at 97 to 98 percent, and other FCR bonds (DE000A352AX7, DE000A254TQ9) are also under pressure. "Apparently there is residual uncertainty as to whether the bond can be repaid on schedule."
Porsche SE: "Several times oversubscribed"
There is news from Porsche Automobil Holding SE, as Marcus Mielert from Oddo BHF reports - with a volume of 1.6 billion euros and in two tranches. The eight-year bond offers 4.125 percent (XS2802892054), the five-year bond 3.75 percent (XS2802891833). With a denomination of 1,000 euros, Porsche SE is also targeting private investors. According to the Group, the bond was oversubscribed several times. Porsche SE is the holding company of the Porsche and Piëch families and primarily holds the majority of VW ordinary shares.
Daniel also refers to a new five-year bond from Karlsberg Brauerei (NO0013168005), which can still be subscribed to until April 25 - subject to the order book being closed early. The coupon is expected to be 6 to 7 percent. "The old bond with a 4.25 percent coupon maturing in 2025 (DE000A254UR5) is more likely to be sold, despite the company's good exchange offer."
By Anna-Maria Borse, 12 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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