The Middle East war and central banks are setting the pace - the bottom line is that yields went up this week. Corporate bonds remain in demand, for example from Porsche SE. And many also want the new Karlsberg bond.
19 April 2024. FRANKFURT (Börse Frankfurt). There is unrest following Israel's suspected attack on Iran last night. Rainer Petz from Oddo BHF speaks of "politically influenced markets". "In addition, the central banks are still an issue - and the recently disappointed expectations regarding interest rate cuts," explains the trader. A first interest rate cut in the USA is now being priced in on the money futures markets for September 18, according to Deutsche Bank, while an initial rate cut by the ECB is 81% likely for June 6.
Due to the situation in the Middle East, bonds are rising today and yields are falling. However, yields had previously risen significantly. Ten-year Bunds were yielding almost 2.5 percent at their peak after 2.39 percent a week ago. At midday on Friday it was still 2.46 percent.
ECB will probably lead the Fed
Interest rate expectations for the eurozone and the US are now diverging even further: "The Fed's recent statements have tended to be hawkish, pointing to a tendency towards high interest rates," notes analyst Hauke Siemßen from Commerzbank. "In contrast, the most recent statements by the ECB Governing Council members were rather dovish, i.e. they tended to emphasize imminent interest rate cuts." Even the monetary policy hawk and head of the Bundesbank, Nagel, spoke of an increased probability of a first ECB interest rate cut in June.
Tim Oechsner from Steubing AG sees a lot of encouragement for long-dated US government bonds, such as those maturing in 2053 with a coupon of 4.75 percent (US912810TV08). Arthur Brunner from ICF Bank is registering more losses for securities from the European Financial Stability Facility EFSF with a coupon of 0.05 per cent and a maturity date of 2052 (EU000A1G0EM3). "These are a good example of the impact of higher interest rates." The bonds are only trading at 42% due to the significant rise in interest rates since they were issued in 2021.
"Secure high interest rates with long maturities"
In the corporate bond business, maturities of around two years are still in particularly high demand, as Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports. But longer maturities are also in demand. "People are buying happily," explains the trader. Examples include bonds from Eon (XS2791960664) and Mercedes (DE000A3LH6U5) maturing in 2044 and 2031 respectively.
"Investors are securing the high level of interest rates with long maturities," Oechsner also notes. Bonds with remaining terms of nine to eleven years from Nestlé (XS2555198162), Vonovia (DE000A3829J7), Eon (XS2574873183) and BMW (XS2280845145) are in demand. Also in demand: the hybrid bond from Stichting AK Rabobank with a 6.5 percent coupon (XS1002121454), as well as US dollar securities from John Deere with a 4.7 percent coupon and a maturity date of 2030 (US24422EWZ86).
Always popular: Porsche SE bonds
Petz from Oddo BHF sees very high turnover in the new Porsche Automobil Holding SE bond. One tranche runs until 2032 and offers 4.125 percent (XS2802892054), the other until 2029 and 3.75 percent (XS2802891833). Due to Südzucker's profit warning, Südzucker bonds (XS0222524372) fell significantly, as Brunner reports, but then recovered somewhat. He is currently observing good turnover in both directions for shares of Deutsche Rohstoff AG (DE000A3510K1). They are currently trading at 110 percent. The company is currently benefiting from the high oil price and the share is at a record level.
(Too) high demand for new Karlsberg bond
The new five-year bond from Karlsberg Brauerei (NO0013168005) appears to be extremely well received. The subscription period for the new issue and the exchange period for the old bond (DE000A254UR5) ended early. "Demand was extremely high, much higher than for the issue of the old bond," reports Daniel. "Many will probably be disappointed with the allocation." The interest rate was set at 6 percent, at the lower end of the 6 to 7 percent range. The regular listing on the Frankfurt Stock Exchange is scheduled for May 2.
From next Monday, a new bond from ABO Wind (DE000A3829F5) maturing in 2029 can be subscribed, as Brunner reports, probably until May 2. The coupon of the green bond is expected to be in a range between 7 and 8 percent. The Wiesbaden-based company is a project developer for renewable energy plants.
By Anna-Maria Borse, 19 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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