01/08/25 12:21:01

Bonds: “Fed decision leaves little impact”

Weak stock markets, but a slow “summer slump” in bond trading. Yields are trending sideways. The fact that US Federal Reserve Chairman Powell has once again opposed US President Trump's calls for interest rate cuts is a cause for optimism.


1 August 2025. FRANKFURT (Börse Frankfurt). Economic fears are putting pressure on the stock market, while bond trading remains calm. Tim Oechsner of Steubing AG speaks of a “summer slump.” “Turnover is low, volatility in German government bonds has cooled, and yields are virtually unchanged,” reports the trader.

The US Federal Reserve meeting on Wednesday provided some food for discussion. Fed Chairman Powell once again resisted political pressure from US President Donald Trump, who is vehemently calling for interest rate cuts. The Fed left key interest rates unchanged in the range of 4.25 to 4.50 percent. Powell also dampened hopes of an interest rate cut in the near future. However, two members of the nine-member Open Market Committee voted for a 25 basis point interest rate cut – apparently the biggest deviation in 30 years.

“Powell shows backbone, but who will come in 2026?”

“In terms of monetary policy, this meeting has made it somewhat less likely that there will be an interest rate cut at the September meeting,” notes Cyrus de la Rubia of Hamburg Commercial Bank. Like many others, he is concerned about the independence of the US Federal Reserve. “Powell shows backbone, but who will come in 2026?” he says. Powell's term ends next May. “We think it is very likely that the new Fed chair will not shy away from Donald Trump's political pressure and will therefore implement interest rate cuts that are unlikely to be appropriate given the economic situation.” 

Cyrus De la Rubia

Cyrus de la Rubia

New signals about short-term interest rate developments are expected from the US labor market report due at 2:30 p.m. our time today. The ECB also left key interest rates unchanged a week ago. The yield on ten-year German government bonds rose to 2.75 percent after the ECB's decision. On Friday morning, it still stands at 2.72 percent. “The Fed's decision has had little impact on German government bonds,” notes Commerzbank analyst Hauke Siemßen. However, there has been a significant increase since mid-April, when yields were at a low of 2.43 percent. 

Federal budget for 2026: High levels of new debt

Siemßen also refers to the federal budget for 2026 and plans for a total deficit of over €174 billion. It is questionable whether all planned expenditures and borrowing will actually take place. “Nevertheless, rising government spending next year is likely to lead to higher growth, but also to increasing inflationary pressure in Germany, and the upside risks for federal bond yields are likely to prevail in the medium term.”
According to Oechsner, there is a lot of activity in the trading of government and government-related bonds in Portugal's government bonds issued this January with a maturity date of 2035, which currently yield 3.11 percent. Also popular are EU bonds maturing in 2034 and currently yielding 3 percent (EU000A3K4ES4). 

Oechsner

Tim Oechsner

Corporate bonds without a clear trend, Mutares loses

There is no clear picture in corporate bond trading, as Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports. “This applies to both maturities and debtors. There is a lack of momentum,” he adds. Oechsner reports good sales in bonds from Mercedes (DE000A2YNZX6), Volkswagen (XS2694874533), and Evonik (DE000A185QB3). These mature in 2030, 2031, and 2028 and currently yield 2.48 percent, 3.35 percent, and 1.99 percent, respectively. 
Bonds issued by the investment company Mutares (NO0013325407, NO0012530965) are trading weaker today, with the share price plummeting, as Rainer Petz of Oddo BHF observes. “Bafin has initiated an audit of Mutares' 2023 annual financial statements,” he explains. According to the company, however, only certain information in the notes and management report is subject to the audit – not the financial figures from the balance sheet and income statement. 
The holiday season is also having an impact on new issues. “Hardly any deals were priced, especially in Europe,” explains Oechsner. 

By Anna-Maria Borse, 1 August 2025, © Deutsche Börse AG

Anna-Maria Borse is a financial and business editor specializing in financial markets/stock exchanges and economic issues.

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