Bonds: “Nervousness remains high”

The UK and Japan are hitting the brakes

“Plans by the UK and Japan to reduce long-term bond issuance have recently caused yields at the long end of the curve to fall,” explains bond analyst Hauke Siemßen from Commerzbank. For months, yields on British and Japanese government bonds with maturities of 30 years have risen significantly, increasing the interest costs for these countries. “Now, the aim is to ultimately save interest costs by issuing fewer government bonds at the long end of the curve.” This has also had an impact on yields on German government bonds.

Eurozone: Further interest rate cut firmly priced in

The market is firmly expecting a further interest rate cut of 25 basis points at the ECB's meeting next Thursday. This would be the eighth reduction in a row. “The futures markets have already fully priced in this move, and all economists surveyed by Bloomberg expect it,” explains Commerzbank analyst Marco Wagner. He also refers to the bank's “ChatECB indicator.” This uses artificial intelligence to interpret speeches, interviews, and comments by ECB Governing Council members as “hawkish” or ‘dovish’ and generates an index from this. “This shows that the ECB's communication has become even more dovish since the end of last year, pointing to further interest rate cuts,” explains Wagner.

In the US, the key interest rate trend is less clear given inflation concerns. According to Deutsche Bank, the next interest rate cut by the US Federal Reserve is not priced into the futures markets until October. By the end of 2025, the cumulative total will be 50 basis points.

Mercedes and Eon in demand

Trading in corporate bonds is currently proceeding without any notable developments, as bond trader Rainer Petz from Oddo BHF notes. Trader Beate Mägerle from Walter Ludwig Wertpapierhandelsbank shares this view: “Overall, trading has been rather quiet all week due to the holidays,” she explains. She observes good demand for bonds from Mercedes-Benz maturing in 2031 (DE000A3LH6U5) and Eon 2028 (XS2574873266) and 2044 (XS2791960664). Yields are currently 2.96 percent, 2.46 percent, and 4.09 percent. VW securities maturing in October 2026 and currently yielding 2.23 percent (XS1893631769) are more likely to be sold.

Werder bond extremely popular

According to Brunner, the new issue from SV Werder Bremen with a coupon of 5.75 percent and maturity in 2030 (DE000A4DFGZ7) is performing very well. “The bond is very popular and is already trading at 102.5 percent,” he reports. He also sees brisk demand for Deutsche Rohstoff, which matures in 2028 and is currently trading at 106.7 percent. This results in a yield of 5.25 percent (DE000A3510K1).

By Anna-Maria Borse, 30 May 2025, © Deutsche Börse