Bonds: "Confidence that debt dispute will be resolved"

Instead of being undecided, the mood is now suddenly really optimistic again. There is also a demand for riskier investments. In addition, the Turkish elections are making themselves felt. And the new issues market is booming. 
 

19 May 2023. FRANKFURT (Börse Frankfurt). Goodbye directionlessness: Since the middle of the week, bond prices have been clearly on the way down and share prices clearly on the way up. The reason is the hope for an agreement in the US debt dispute. The White House had reported "steady progress" yesterday, Thursday. "Overall, there is confidence that the dispute will be settled in time," reports Tim Oechsner of Steubing AG. The result: a clear brightening of sentiment. "It's out of government bonds, the 'safe havens,' and into risky bonds."

As far as further interest rate developments are concerned, however, interest rate cuts in the U.S. are now not expected quite so soon. "This was also due to the majority of 'hawkish' central bank comments," explains analyst Ralf Umlauf of Helaba. "Hawkish" is the term used to describe a tight monetary policy with a tendency toward higher interest rates. "Hawkish" comments also came from the ECB.

The yield on 10-year German government bonds has risen sharply over the week to 2.46 percent Friday morning from 2.25 percent a week ago.

"Italy's interest rate premium will rise"

Incidentally, Commerzbank analyst Hauke Siemßen expects spreads on bonds issued by peripheral eurozone countries to rise again - partly because of the ECB's bond reinvestment freeze from July. "For example, the yield spread of ten-year Italian government bonds over Bunds is likely to widen to over 200 basis points."

Steubing AG currently has a lot going on in Italian government bonds maturing in 2051 with coupons of 1.7 percent (IT0005425233). Prices have fallen sharply since the beginning of 2022 due to the turnaround in interest rates. Currently, the bonds are trading at just 55.77 percent.