And once again, key interest rates have risen, in the euro zone and the USA. But now the end of the rate hike cycle seems to be in sight. Bonds from solid issuers are still in demand. Only from the real estate sector is there more bad news.
28 July 2023. FRANKFURT (Börse Frankfurt). It was the week of the central bankers, but there were no big surprises. As expected, the US Federal Reserve and the ECB raised their key interest rates by 25 basis points this week. The U.S. rate is now 5.25 to 5.5 percent, and the eurozone rate is 4.25 percent.
The central banks kept all doors open for further action. "But there are signs of a pause in the interest rate cycle," reports bond analyst Hauke Siemßen of Commerzbank. He said the market is now pricing in only a 40 percent probability for the ECB to make another rate move in September. "The end of the rate hike cycle is coming within reach," Ulrike Kastens of DWS also believes. As before, however, the ECB remains heavily data-dependent, she said. "In our view, everything now depends on the central bank's economic growth and inflation projections in September."
Yields high, but no peaks
Week-on-week, yields rose a bit: Ten-year Bunds yielded 2.49 percent Friday morning, up from 2.45 percent last Friday. In the U.S., ten-year Treasury yields are currently at 4 percent, up from 3.85 percent a week ago. However, recent highs have not yet been reached: Bund yields had climbed to 2.77 percent earlier this year and Treasuries to 4.34 percent last fall.
"Corporate news more important"
None of this matters much in corporate bond trading. "More important is concrete news about the companies," notes Gregor Daniel of Walter Ludwig Wertpapierhandelsbank. The Porsche Automobil Holding bond issued in June at 4.125 percent until 2027 (XS2643320018) continues to be well received, he says. Also popular: the zero-coupon bond from Nestlé (XS2350621863), which runs until 2026 and currently yields 3.19 percent. "We're only seeing buying there."
Daniel
Tim Oechsner of Steubing AG also reports brisk turnover for Porsche bonds (XS2643320109, XS2615940215), in this case with coupons of 4.25 percent and maturing in 2030 and 4.5 percent and maturing in 2028, respectively. A lot is also going on in Bayer securities with 4.625 percent until 2033 (XS2630111719).
Real estate sector: Restructuring requested again
There is a lot going on in the mid-market bond segment right now. "We are seeing quite a bit of price movement and turnover," reports Oechsner. Papers of Paul Tech (DE000A3H2TU8), Photon Energy (DE000A3KWKY4) and Stern Immobilien (DE000A2G8WJ4) recorded significant price losses.
Oechsner
It is primarily the real estate sector that is taking a battering. In addition to Stern, the commercial real estate companies ERWE Immobilien (DE000A255D05) and DEMIRE Deutsche Mittelstand Real Estate (DE000A2YPAK1), the office property developer Preos Global Office Real Estate & Technology (DE000A254NA6), science park specialist ESPG (DE000A2NBY22, <DE000A351VD7>) and now luxury real estate developer Euroboden (<DE000A2YNXQ5>, <DE000A289EM6>). Since this Monday it is officially known that Euroboden has massive problems and wants to restructure the two bonds. The bonds are to run three years longer, with an option for another two years. The interest rate is to fall to 2.5 percent annually, and in addition the new interest is not to be due until the end of the term.
Other companies under pressure
According to Daniel, bonds of real estate companies that have not yet made a name for themselves with bad news have also come under pressure in the course of this: FCR Immobilien (<DE000A2TSB16>), due in April 2024, and DIC Asset (<DE000A2NBZG9>), due Oct. 2 this year. "There is uncertainty about whether the companies will be able to pay back the money," Daniel explains, referring to the current yields of 15 percent and 11.56 percent.
by: Anna-Maria Borse, 28 July 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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