04/07/25 12:07:08

Bonds: Calm before the storm?

Things are still moving slowly, with yields trending sideways. But next Wednesday could change that, according to reports. A new trend: British government bonds, because they offer higher yields. Mercedes-Benz, EnBW, and Werder Bremen are also in demand.


4 July 2025. FRANKFURT (Börse Frankfurt). The public holiday in the US – Independence Day – is causing little movement in bond trading here today. However, the other days of the week have also been quiet, as Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports.y “There is a lack of momentum,” the trader notes. However, that could change next week. On July 9, Wednesday, US President Donald Trump's 90-day deadline for negotiations to prevent ‘reciprocal’ tariffs expires. “There could well be a surprise in store,” says Daniel.

The sideways movement of yields continues. Ten-year German government bonds briefly yielded over 2.6 percent this week. This was due to the tax cuts passed in the US, as Arthur Brunner from ICF Bank reports. On Friday afternoon, however, the yield was back at 2.54 percent, roughly the same level as the previous week.
 

Controversial US interest rate cut

One of the highlights of this week was the US labor market data published yesterday, Thursday. In June, the number of people in employment rose more strongly than expected, and the unemployment rate fell more significantly. The labor market therefore does not appear to need lower interest rates. Another argument against interest rate cuts is the US president's major fiscal package, which was launched this week. “It will drive government debt to new heights. In addition, the additional tariffs increase the risks of inflation,” notes Helaba analyst Ralf Umlauf. US Federal Reserve Chairman Jerome Powell defended his monetary policy at the conference in Sintra, Portugal. Without the effects of Trump's tariff policy, the US Federal Reserve would have lowered interest rates long ago, he explained. 

British ten-year bonds: around 4.5 percent instead of 2.5 percent

Another topic: the yield premiums that Europe's peripheral countries have to pay compared to Germany. “The spreads on Italian government bonds fell below the psychologically important 90 basis point mark this week, making them only slightly higher than the spreads on French government bonds,” explains Commerzbank analyst Erik Liem. He expects spreads to narrow further over the summer and Italian spreads to converge with French spreads. “However, risk premiums are likely to rise again later in the year when the ECB ends its interest rate cuts and fiscal problems come back into focus.”

According to Brunner, US government bonds are sometimes sold and sometimes bought. “British government bonds are clearly in demand at the moment,” adds the trader. The reason: the yield premium over German government bonds, which is now 193 basis points in the ten-year range. 
 

Always in demand: well-known names

In corporate bond trading, well-known names such as Mercedes-Benz (DE000A3LH6U5, DE000A2YPFU9) and EnBW 2031 (XS2862984510) continue to perform well, as Daniel reports – all maturing in 2031. Yields are currently 2.84 percent for both Mercedes bonds and 2.93 percent for the EnBW bond. Investors are also snapping up a bond issued in February by Italian food manufacturer NewPrinces, maturing in 2031 and currently yielding 4.26 percent (XS2958536976). 

Werder Bremen bond in demand

Brunner reports strong demand for the bond issued by SV Werder Bremen in May with a coupon of 5.75 percent and maturity in 2030, which is currently trading at 104.5 percent (DE000A4DFGZ7). Also in demand and now trading at 106 percent: Hörmann Industries with a coupon of 7 percent and maturity in 2028 (NO0012938325). Semper idem Underberg with 5.5 percent until 2028 (DE000A30VMF2) is more likely to be sold this week – without any news.

New issues this week were almost exclusively in denominations of €100,000, as dealers also report. 
 

By Anna-Maria Borse, 4 July 2025, © Deutsche Börse

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

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