Bonds: “flight to safety”

Bond prices are benefiting from higher demand in the current environment. Hopes are rising that key interest rates in the US will fall. In the corporate bond market, a bond issued by a real estate developer has been under pressure since Monday.

October 17, 2025. FRANKFURT (Frankfurt Stock Exchange). Bond yields have fallen significantly over the week. Ten-year German government bonds fell from 2.68 percent to 2.55 percent. The yield on ten-year US Treasuries fell from 4.11 percent to 3.95 percent, dropping below the psychologically important 4.0 percent mark for the first time since April. “The bond bulls have thus cleared a significant technical hurdle for further price gains,” analyzes Elmar Völker of LBBW.

The reasons for the decline in yields

In his view, it is currently primarily the “flight to safety” that is causing bond prices to rise and yields to fall. The bond specialist specifically cites new concerns about a global trade war with negative effects on the global economy as “one of several reasons for the significant tailwind on the major government bond markets on both sides of the Atlantic.”

Added to this are the latest bad news from the US regional banking sector and dovish comments from leading US central bankers. Their statements “mostly point to the possibility of an interest rate cut in the near future,” as Ralf Umlauf from Helaba explains. Among others, Fed Chairman Jerome Powell pointed to downside risks in the labor market this week. Völker even sees the possibility of new speculation about a “major” interest rate move on October 29. This could happen if concerns about credit quality in the US banking sector spread.

Market technology versus fundamentals

In this country, the slide in 10-year yields to their lowest level in around four months strengthens the likelihood of a “sustained bullish trend in bonds” from a market technology perspective, writes the LBBW strategist. This thesis is supported by the breakout from the narrow trading range between 2.60 and 2.80 percent that had been established since July.

According to Völker, however, the final decision on the direction of the bond markets will be made by further developments in the US regional banking sector and the conflict between the US and China. If the parties take a de-escalation course in the coming weeks, “then the recent price surges on the government bond market are likely to be corrected again.”

Risk premiums on corporate bonds

Price gains on European corporate bonds have been relatively modest in recent days. According to Pascal Reichert of Commerzbank, this is due to increased risk premiums. “Triggered by setbacks on the US market for corporate bonds, investors have also reassessed the risk premiums on European corporate bonds,” explains the bond expert.

Meanwhile, Raffaele Antacido of ICF Bank reports strong demand for bonds issued by German car manufacturers. Particularly in demand is a Volkswagen bond maturing in April 2028 with a current yield of 2.60 percent (<XS2152061904 >). “VW was able to almost completely offset weak sales in China and the US with growth in Central and Eastern Europe and South America,” says the bond trader, summarizing developments in the third quarter.

Pandion bond crash

The Pandion AG bond (DE000A289YC5), which officially has only a few months left to run, recorded strong price movements. At the beginning of the week, the real estate developer announced that it had concluded a financial agreement with an investor in the amount of €100 million as part of the ongoing restructuring of its financing.

“Speculation about an adjustment to the terms of the existing bond led to a wave of selling,” reports Antacido. The bond price fell from 79 percent to 62 percent over the week. A month ago, the bond was still trading at over 90 percent.

As in the previous week, the AUD bond issued by New South Wales Treasury Corp. (AU3SG0003270), which matures in 2039, is once again enjoying great popularity. Gregor Daniel of Walter Ludwig Wertpapierhandelsbank reports sustained buying activity here. Despite higher prices, the bond still yields over 5.0 percent.