Falling inflation continues to fuel hopes of an end to interest rate hikes. Yields have fallen again. And no interest rate changes are expected for next week's central bank meetings.
8 December 2023. FRANKFURT (Börse Frankfurt). Rising prices, falling yields - the trend from the previous week has continued this week. According to most market participants, the time for interest rate hikes is over. Interest rate cuts are even expected for next year. The yield on ten-year German government bonds was only 2.19 percent on Friday morning, yesterday (Thursday) it was 2.16 percent, the lowest level since April. In October it was still 3 percent.
In terms of turnover, there is a lot to do in bond trading on the stock exchange. "There's a lot going on at the moment. Some people are clearing out their portfolios at the end of the year," reports Gregor Daniel, who trades bonds for Walter Ludwig Wertpapierhandelsbank. "Stock market turnover is very good," says Rainer Petz from Oddo BHF. "Over-the-counter trading is quieter, and we are benefiting from that." Both government and corporate bonds are being bought a lot. According to Tim Oechsner from Steubing AG, however, things are slowly calming down. "Many market participants are entering 'Christmas mode'."
The latest US labor market report, which will be published this afternoon, is eagerly awaited this Friday. "It has the potential to influence interest rate expectations, especially as Fed Chairman Powell has repeatedly warned that a tight labor market could jeopardize progress in the fight against inflation," says analyst Ralf Umlauf from Helaba. The door for an additional interest rate hike has not yet been closed by the Fed. "However, this is being ignored by market participants."
ECB, Fed, Bank of England - the week of the central banks
There is likely to be a lot more information on this topic next week due to the central bank meetings in the eurozone, the US and the UK. "Although neither the ECB nor the Fed are due to change their interest rates," notes analyst Hauke Siemßen from Commerzbank, ECB President Lagarde will probably use the press conference to reign in market expectations. The updated inflation forecasts are also likely to be interesting, in particular how quickly the ECB expects inflation to return to its 2% inflation target.
No longer just short-dated bonds in demand
According to Oechsner, there is still strong demand for corporate bonds from Mercedes-Benz (DE000A2GSCW3), Deutsche Bahn (XS2624017070), Nestlé (XS2263684776), Bayer (XS2630111719), Siemens (DE000A1UDWN5) and VW (XS2694874533), maturing between 2028 and 2033 and with current yields of 2.64 to 4.23 percent. Also in demand: US dollar bonds from John Deere (US24422EWZ86).
Öchsner
According to Gregor Daniel, Lufthansa bonds benefited from the upgrade to "investment grade" by the rating agency S&P at the beginning of the week. One hybrid bond in particular (XS1271836600) rose. "After the price increase, however, there were sales." The trader also reported good turnover with mostly purchases for short-dated bonds from Grenke (XS2078696866), Deutsche Telekom (XS1828032786) and Mercedes-Benz (DE000A2R9ZU9), but also for Mercedes-Benz securities maturing in 2031 (DE000A3LH6U5). "Some people are also switching from short-term to long-term."
Hardly any turnover in Signa bond
For once, there was no new bad news from the real estate sector this week, as Petz explains. "A bit of calm has returned." Due to the insolvency of René Benko's Signa holding company, Oechsner is still reporting strong price fluctuations for the Signa bond with a coupon of 5.5 percent (DE000A3KS5R1), which matures in 2026 and is traded without accrued interest. "However, turnover is low."
Petz
The new bond from Leef Blattwerk GmbH (DE000A352ER1) can be subscribed until December 14, with a 9 percent coupon for a term until 2028. The company offers disposable tableware made from palm leaves, as well as cutlery, food packaging and non-food products.
By Anna-Maria Borse, 8 December 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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