18.10.24 12:18:41

Bonds: “After an interest rate cut is before an interest rate cut”

The ECB has responded to falling inflation and a weak economy by cutting its key interest rates once again. The question now is whether a further reduction will follow this year. Well-known names remain in demand in corporate bond trading


18 October 2024 FRANKFURT (Frankfurt Stock Exchange). Delivered as expected - the ECB interest rate cut yesterday was not a big surprise. The central bankers reduced the benchmark deposit rate by 0.25 percentage points to 3.25 percent. ECB President Lagarde did not commit herself to further steps and once again referred to the dependence on the data situation.

“After the rate cut is before the rate cut,” notes Klaus Stopp from Baader Bank. In his opinion, a further interest rate cut this year is not a foregone conclusion. “A flare-up in inflation cannot be ruled out,” he notes, also with a view to the latest wage increases. 

“Probably weaker economy than expected by ECB”

However, expectations of interest rate cuts have increased slightly again following the ECB meeting, as analyst Ralf Umlauf from Helaba reports. The majority of the market is now expecting a further key interest rate cut of 25 basis points in December. “In view of the current negative momentum of the economy in the eurozone, we see a weaker economic trend than the ECB is targeting,” comments ING chief economist Carsten Brzeski. The ECB will probably cut interest rates further and bring them to a neutral level as quickly as possible.

There was not much going on in bond trading before the ECB meeting: “Overall, trading was very quiet due to the ECB, investors stayed on the sidelines,” reports Tim Oechsner, who trades bonds for Steubing AG. “But there were many new issues.” The yield on ten-year German government bonds stood at 2.20 percent on Friday lunchtime, the same level as the previous week. Ten-year US Treasuries are currently yielding 4.11 percent after 4.08 percent last Friday.

Mercedes, Lufthansa and MTU popular

Well-known names are still in demand in corporate bond trading. Beate Mägerle from Walter Ludwig Wertpapierhandelsbank is seeing greater buying interest in two Mercedes Benz bonds maturing in 2027 and 2031 with current yields of 2.70 and 3.02 percent (DE000A3LSYG8, DE000A3LH6U5), as well as in Deutsche Lufthansa bonds maturing in 2028 and currently yielding 3.37 percent (XS2892988275) and MTU bonds maturing in 2031 and currently yielding 3.40 percent (XS2887896574).

From the SME bond segment, Mägerle reports good demand for bonds issued by Karlsberg Brauerei, which mature in 2029 and currently yield 4.03% (NO0013168005). 

From Würth to JP Morgan to UBM - flood of new bonds

According to Oechsner, examples of the numerous new issues include securities from the Pfandbrief bank DZ Hyp with 2.625 percent until 2031 (DE000A3825M9), the manufacturer of assembly and fastening materials Würth with 3 percent until 2031 (XS2911681083) and the British science publisher Informa PLC. There are three tranches, namely 3.25 percent until 2027 or 2030 (XS2919101498, XS2919102207) and 3.625 percent until 2034 (XS2919102892).

According to Oechsner, new US dollar bonds came from the US bank JP Morgan with 4.946 percent until 2035 (US46647PER38) and 4.505 percent until 2028 (US46647PEP71). There was also news from Argentina's power company YPF Energia Eléctrica with 7.875% until 2032 (USP9897PAS31) and Japan's car manufacturer Toyota with 4.35% until 2027 (US89236TMS14).

At Walter Ludwig, the new issue of the Viennese real estate developer UBM Development is traded at 7 percent until 2029 (AT0000A3FFK1), as Mägerle also explains. The minimum denomination here is 500 euros. The green bond was linked to an exchange offer for the UBM bonds maturing in 2025 and 2026 (AT0000A2AX04, AT0000A2QS11), which runs until October 15. UBM was satisfied with the exchange. The subscription period for the Green Bond started on Wednesday and is expected to run until next Tuesday.

From Anna-Maria Borse, 18 October 2024, © Deutsche Börse

Anna-Maria Borse is a financial and business editor specializing in the financial market/stock exchange and economic topics.

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