24/01/25 13:11:36

Bonds: Easing after the first Trump executive orders

Despite initial measures: Exactly what new U.S. President Trump will do on tariffs and spending remains to be seen - and with it, the impact on inflation and interest rates. Many corporate bonds remain in demand.


24 January 2025 FRANKFURT (Frankfurt Stock Exchange). The rapid rise in yields from December and the first half of January has not continued - on the contrary. Yields have fallen again this week, both in the eurozone and in the USA. “Ten-year Bund yields are now scratching the 2.5 percent mark again, and the yield premiums on Italian, Spanish and French government bonds have also fallen significantly,” reports bond analyst Hauke Siemßen from Commerzbank. The usual wave of government and corporate bond issues at the beginning of the year was also well absorbed.

One reason for the fall in yields: Trump did not say anything about tariffs, especially towards Europe, at his inauguration on Monday. The yield on ten-year German government bonds stood at 2.53% on Friday morning, last week it peaked at over 2.62% - a sharp increase on the 2% at the beginning of December. The situation is similar in the USA: Ten-year Treasuries are currently yielding 4.63 percent again after a high of 4.80 percent. 

Trump plans: “Exact details still unclear”

The week was dominated by the inauguration of Donald Trump. “Since election day, the bond markets have been pricing in a risk premium for his plans to increase spending and cut taxes,” explains Helaba Chief Economist Gertrud Traud. However, everything is (still) proceeding in a fairly orderly fashion. The direction of the numerous decrees signed immediately after taking office came as no surprise. “However, it remains unclear for the time being exactly how this will be structured,” notes Traud. The US Federal Reserve is also likely to be reluctant to cut interest rates further, as higher tariffs and fewer workers could significantly fuel inflation.

ECB rate cut firmly priced in - “pause button” for the Fed?

Next week's central bank meetings could reveal what happens next with interest rates. The ECB's interest rate cut of 25 basis points is considered a foregone conclusion, but statements on the future interest rate path are likely to be more important. By contrast, the US Federal Reserve is not expected to raise interest rates this time. “The Fed is likely to press the pause button next week and leave key interest rates unchanged,” comments analyst Bernd Weidensteiner from Commerzbank. Behind the Fed's more cautious approach is the still relatively stubborn inflation, while the labor market remains stable. However, the US key interest rate has probably not yet reached its low. “We continue to expect two rate cuts of 25 basis points each at the March and June meetings,” explains Weidensteiner.

Incidentally, the Japanese central bank is on the opposite course, having raised its key interest rate again today - by 0.25 percentage points to 0.5 percent, the highest level in 17 years. Japan's central bank ended its negative interest rate policy in March and brought the key interest rate back into positive territory.

“Short and medium maturities in demand”

Trading in corporates is the order of the day. Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports brisk demand for corporate bonds. “It's all over the place, especially across shorter and medium maturities,” reports the trader. Bonds from Otto maturing in 2026 (XS1979274708), Lufthansa in 2028 (XS2892988275), Fraport in 2032 (XS2832873355) and VW in 2026 (XS1893631769), with current yields of between 3.16 and 3.76 percent, have been well received. Also popular: the RCI Banque (FR001400N3F1) bond maturing in 2029, currently yielding 3.52 percent.

Agon Alihajdari from Steubing AG sees good turnover for bonds from Sixt maturing in 2030 (DE000A4DFCK8) and Deutsche Bahn maturing in 2027 (XS2689049059), which are currently yielding 3.53 and 2.81 percent respectively. Also popular: the US dollar bond from John Deere (US24422EWZ86) maturing in 2030, currently yielding 4.98%.

By Anna-Maria Borse, 24 January 2025, © Deutsche Börse

Anna-Maria Borse is a financial and business editor specializing in the financial market/stock exchange and economic topics.

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