Inflation is stubborn, but central bankers are also stubborn in their fight against it. This is weighing on the market. Good credit ratings and short maturities remain in demand. By contrast, the SME bond market remains under pressure.
30 June 2023. FRANKFURT (Börse Frankfurt). Central bankers are not letting up in the fight against inflation - this became clear once again at the conference in Sintra, Portugal. Fed Chairman Powell again held out the prospect of rising interest rates: the data showed that growth was stronger, the labor market tighter and inflation higher than expected. ECB chief Christine Lagarde stressed that a pause in rate hikes was out of the question for now. "Interest rate concerns remain a drag, with market participants expecting a continuation of tight monetary policy in both the U.S. and the eurozone," reported Tim Oechsner of Steubing AG.
"Core rate remains the problem"
Also, came the latest inflation figures: In Germany, consumer prices rose more sharply again in June, up 6.4 percent from a year earlier, after rising 6.1 percent in May. However, in June 2022, the nine-euro ticket, which is limited to three months, and the fuel discount had dampened price increases; this year, the effect did not apply. Core inflation was 5.8 percent, up from 5.4 percent in May. In the euro zone, however, consumer prices rose by only 5.5 percent after 6.1 percent in May, according to Eurostat, the statistics office, which reported today. That's the lowest inflation rate since early 2022, but core inflation climbed to 5.4 percent from 5.3 percent. "The core rate remains the problem," commented Ulrike Kastens, an economist at DWS.
"The bond market gave back this week's initial gains after the announcement of higher-than-expected inflation figures," ICF Bank's Arthur Brunner reports from bond trading. Ten-year Bunds currently yield 2.45 percent, up from 2.49 percent a week ago.
Brunner
Good Quality Continues to Attract
In the corporate bond business, short-dated bonds with good credit ratings remain in demand, as ICF's Brunner notes. Steubing AG has a lot going on in bonds from Mercedes-Benz (DE000A3LH6T7, DE000A2GSCW3), Fraport (XS2198879145), Knorr-Bremse (XS1837288494) and Bayer (XS2630112014, XS2630111719). These are due between 2026 and 2033, with yields of 3.25 to 4.4 percent. Beate Mägerle of Walter Ludwig Wertpapierhandelsbank sees a lot of interest in Sixt's 5.125 percent bond (DE000A351WB9) issued in early June and maturing in 2027.
Among foreign currency bonds, Brunner says a U.S. dollar-denominated bond from John Deere at 2.65 percent through June 2024 (US24422ETT63) is seeing a lot of interest. There were significant losses in bonds issued by French supermarket chain Casino, Guichard-Perrachon (<FR0012369122>), he said. "The debt is to be converted into equity."
The major raid at Adler Real Estate remains without major repercussions: The public prosecutor's office in Frankfurt and the BKA searched more than 20 properties of the ailing real estate group on Wednesday. Among other things, it is about the suspicion of false accounting and market manipulation. "Not much is happening with the bonds," reports Marcus Mielert of Oddo BHF.
Restraint in small bonds
The liquidation of the Deutsche Mittelstandsanleihe Fonds DMAF (LU0974225590), announced on June 14, continues to weigh on the market for SME bonds. All bonds in the fund are to be sold step by step. "It's like a sword of Damocles, you don't know if anything has been sold yet, and what's to come," notes Brunner.
This came under selling pressure the bond of the automotive supplier Paragon (DE000A2GSB86). "The price slipped from 71 percent to 65 percent," Brunner reports. Things are getting serious for ERWE Immobilien (DE000A255D05). "Now there is pressure to make a decision," Marcus Mielert puts it. The company had not made an interest payment on the bond due on June 10 and then announced a "comprehensive financial restructuring". Among other things, this involves deferring the interest payment and converting the bond into equity. Since yesterday, Thursday, until next Sunday, July 2, bondholders can vote on the issuer's proposed measures.
"Demand for new Porsche bond is high".
Porsche Automobil Holding S.E. is coming to the market with another bond after its successful debut in April, with a volume of 1.25 billion euros in two tranches and denominations of 1,000 euros. One tranche runs until September 2027 and offers 4.125 percent (XS2643320018), while the other runs until September 2030 and offers 4.25 percent (XS2643320109). "Demand is high," explains Beate Mägerle, referring to the one that runs until 2027. Listed Porsche Automobil Holding S.E. is a major shareholder of Volkswagen AG and also of Porsche AG, which is listed on the stock exchange.
At Walter Ludwig Wertpapierhandelsbank, a new UBM bond with a coupon of 7 percent that matures in 2027 is in demand (AT0000A35FE2), Mägerle reported. On Monday, the subscription period for concert promoter DEAG Deutsche Entertainment's (NO0012487596) new three-year bond with coupon of 8 percent ended early due to oversubscription. "Since Tuesday, we have seen brisk trading per appearance." Currently, the bond is trading around 100.50 percent.
By Anna-Maria Borse, 30 June 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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