Yields are higher than they have been for more than a decade. And there is no thought of key interest rate cuts for the time being - the market has taken note of this. News from Wienerberger, Fresenius and BMW, among others.
6 October 2023. FRANKFURT (Börse Frankfurt). The rise in interest rates this week was extraordinary: yields of 3 percent for ten-year German government bonds, last seen in 2011. "It was a wild week," reports Arthur Brunner, who trades bonds for ICF Bank. He has seen high demand specifically from private investors, while institutional investors have tended to sell. As of Friday morning, the yield on 10-year German bunds is still at 2.90 percent, while the yield on U.S. government bonds of the same maturity is at 4.74 percent, peaking at 4.88 percent.
"High interest rates do increase the attractiveness of bonds compared to equities, but there has nevertheless been a significant decline in turnover for several trading days," meanwhile reports Tim Oechsner of Steubing AG. "Uncertainty due to interest rates possibly rising even further is too great. Wait and see is the order of the day." We are waiting today, Friday, for the U.S. labor market figures due in the afternoon. From which information is hoped about the further pace of the U.S. Federal Reserve.
"High interest rates do increase the attractiveness of bonds compared to equities, but there has nevertheless been a significant decline in turnover for several trading days," meanwhile reports Tim Oechsner of Steubing AG. "Uncertainty due to interest rates possibly rising even further is too great. Wait and see is the order of the day." We are waiting today, Friday, for the U.S. labor market figures due in the afternoon. From which information is hoped about the further pace of the U.S. Federal Reserve.
Öchsner
Long-runners from Italy popular
It is also unclear what will happen next in the euro zone. ECB Governing Council member Francois Villeroy de Galhau just said that there are currently no reasons to raise key interest rates further. Since the last hike, he said, there have been "good inflation figures" with long-term interest rates rising sharply. "Therefore, I believe that there is currently no justification for a further increase in ECB interest rates," Villeroy told Handelsblatt.
In the area of government bonds, Brunner said investors are now betting on long-dated bonds from Italy or Austria. "Private investors are taking advantage of the weakness in the bond market." For example, an Italian government bond that still matures in 2045 is currently offering 5.18 percent (IT0005438004). But U.S. Treasuries are also in demand, he said.
Grenke, Fresenius and Sixt impress
Corporate bonds also continue to be popular: for example, Grenke Finance's new bond due 2027 (XS2695009998) has been well received, as Rainer Petz of Oddo BHF reports. "We continue to see decent turnover there." At a price of 101.1 percent, it currently yields 7.5 percent. Brunner reports purchases for the Fresenius bond due 2031 (XS2325562697), and the new issue of Deutsche Rohstoff AG with 7.5 percent to 2028 (DE000A3510K1) is also in high demand. According to Gregor Daniel of Walter Ludwig Wertpapierhandelsbank, the Sixt bond due next February with a current yield of 4.64 percent (<DE000A2G9HU0>) is always in demand. He reports smaller buying for an RWE bond maturing in 2029 with a 4.06 percent yield (XS2584685031).
Petz
Daniel also observes turnover on both sides in the Grenke bond due 2025 with a yield on the last turnover of 7.01 percent (XS2078696866). On the other hand, Schalke bonds (DE000A3MQS49) have come under selling pressure, as Brunner explains: "Given the table situation, this is also no wonder." Schalke is currently in 16th place in the second Bundesliga.
Wienerberger with sustainability-linked bond
Oechsner reports three new issues: from the building materials group Wienerberger with a coupon of 4.875 percent and maturity in 2028, from the healthcare group Fresenius with 5.125 percent until 2030 (XS2698713695) and from Volkswagen Leasing with 4.625 percent until 2029 (XS2694872594). The minimum investment amount in each case is 1,000 euros. "All are sought after," explains Oechsner. Petz also reports a new bond, from BMW maturing in 2033 with a coupon of 4.125 percent (XS2698773913). The Wienerberger bond is the first sustainability-linked bond ever distributed in the retail segment of the Austrian capital market. The bonds are characterized by the fact that their performance is closely linked to the achievement of key Wienerberger ESG targets.
A bond issued by Baltic financial services provider Eleving Group (DE000A3LL7M4), formerly Mogo Finance, is still available for subscription until October 20. The coupon is 13 percent at maturity in 2028. Until October 13, the unsecured Mogo AS bond (V0000802452) can still be exchanged for the new bond.
By Anna-Maria Borse, 6 October 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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