Interest rate cuts are coming, but not as quickly as had long been hoped - this is the tenor on the bond market. Yields have therefore risen again slightly. In contrast, the prices of Depfa bonds have fallen further.
16 February 2024. FRANKFURT (Börse Frankfurt). The low yields from December are a thing of the past. The central bankers are unlikely to cut key interest rates as quickly as expected, neither in the USA nor in Europe. In any case, yields rose again slightly compared to the previous week.
On Friday morning, ten-year German government bonds were yielding 2.38%, compared to 2.36% a week ago - both a far cry from the 1.89% in December. The situation is similar in the USA.
"The still solid US economic data is weighing on prices on the US bond market, and this is also largely determining the tone on the European bond market," explains bond analyst Hauke Siemßen from Commerzbank. In addition, the US Federal Reserve continues to signal that it is in no hurry to cut interest rates. The US money market is therefore pushing back expectations of interest rate cuts. "The first Fed rate cut is now priced in for June."
Lagarde: Progress in the fight against inflation must not be undone
Hopes of an interest rate cut in the eurozone were also dampened again this week: ECB President Christine Lagarde warned against a premature interest rate cut yesterday, Thursday. The ECB should not risk undoing progress in the fight against inflation with a hasty interest rate cut. The downward trend towards the two percent inflation target is intact. "But we need to be more certain," emphasized Lagarde in the EU Parliament.
In government bond trading, US Treasuries are in demand, as Tim Oechsner from Steubing AG notes, such as those maturing in 2026. These currently offer a yield of 4.47 percent (US91282CBH34).
Oechsner
Depfa share prices fall and fall
Meanwhile, the US commercial real estate crisis continues to weigh on Deutsche Pfandbriefbank (Depfa). Shares and bonds fell again this week. Depfa hybrid bonds with an 8.474 percent coupon (XS1808862657) are now trading at just 23 percent, as Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports. The bond traded at Oddo BHF maturing in 2027 with a coupon of 4.6 percent fell to just 33 percent (DE000A2DASM5), as Rainer Petz notes. Oechsner reports many losses for the Depfa bond maturing in 2027 traded at Steubing AG (DE000A30WF27). This week, the rating agency Standard & Poorʼs downgraded Depfaʼs credit rating. At BBB-, the rating for long-term creditworthiness is now only one notch above junk level.
Bonds issued by Viennese real estate developer UBM Development are unimpressed by this. "There is a lot of buying going on," says Daniel. The bond maturing in November 2025 with a current yield of 8 percent (AT0000A2AX04) has been particularly well received, as have the bonds maturing in 2026 (AT0000A2QS11) and 2027 (AT0000A35FE2) with yields of 10.76 and 6.22 percent.
Daniel
In demand: energy and car companies
Apart from that, Daniel is seeing a lot of buying for bonds from energy companies, specifically EnBW (XS0207320242), RWE (XS2584685031) and Eon (XS2574873266). With maturities until 2025, 2029 and 2028, they currently yield 3.5 percent, 3.3 percent and 3.1 percent respectively. According to Oechsner, bonds from VW (XS2694874533), Bayer (XS2630112014), Eon (XS2747600109) and Mercedes (DE000A3LH6T7) are in demand. Deutsche Bank (DE000DB7XJJ2) shares were traded on both sides.
There was news this week from Siemens, among others. The Munich-based company raised 5 billion euros on the bond market on Thursday, in four tranches with maturities of between just under 5 and 20 years. According to Bloomberg, this is the largest corporate bond issue in a year.
by Anna-Maria Borse, 16 February 2024 © 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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