Bonds: Strong countermovement after US inflation

Lower-than-expected U.S. inflation figures have caused yields to fall again, and significantly so. Corporate bonds continue to be attracted by "good names" and short maturities.

14 July, 2023 FRANKFURT (Börse Frankfurt). The worries about even higher interest rates have not been swept away, but they have become smaller. The reason is inflation in the U.S., which has unexpectedly weakened significantly, as the figures published on Wednesday show. "While another Fed rate hike on July 26 is still generally considered a set, things now look different for the period after that," Deutsche Bank analysts report. By November, they say, an additional rate hike is now priced in with only a 15 percent probability, and a first rate cut for March 2024.

"Negative data from real economy faded out".

After the previous week's sharp rise in yields, yields have therefore fallen significantly again this week. Rainer Petz, who trades bonds at Oddo BHF, speaks of a "strong countermovement". Ten-year Bunds are currently yielding 2.48 percent, down from 2.62 percent a week ago. In the U.S., the situation is similar: U.S. ten-year bonds were yielding 4.06 percent a week ago, now 3.80 percent. "What is remarkable is that rather negative data from the real economy has been almost completely sidelined," notes Tim Oechsner of Steubing AG. "Bond traders are mainly focused on price data as well as the related interest rate policies of the ECB and the U.S. Federal Reserve."

In government bond trading, bonds due March 2024 from the Republic of Ireland with a coupon of 3.4 percent (<IE00B6X95T99>) are in demand, notes Gregor Daniel of Walter Ludwig Wertpapierhandelsbank. Arthur Brunner of ICF Bank reports a new fifteen-year Greece bond with a 4.375 percent coupon (GR0128017747) is doing well.

Short maturities, good name

As far as corporate bonds are concerned, papers with a maximum term of five years continue to find many fans. "Especially two to three years are popular, plus 1,000 denomination, yields of 3 to 3.5 percent and a good name," Oechsner sums it up. Examples include papers from VW (XS2374595044, XS2374594823), RWE (XS2523390271), Fraport (XS2198879145), Deutsche Pfandbriefbank (DE000A31RJS7) and Deutsche Telekom (XS1382791975). These offer yields of between 3.4 and a good 4 percent for maturities up to a maximum of 2030. The Grenke Finance bond with a coupon of 3.95 percent (XS2155486942), which matures in 2025, is also popular, as Brunner reports, as is the recently increased Mutares bond with a coupon of 12.098 percent and maturity in 2027 (NO0012530965).

Oechsner

Preos shocks the market

Bad news continues to come out of the real estate sector: Commercial real estate developer Preos Global Office Real Estate & Technology is asking creditors to change the terms of its 7.5 percent coupon convertible bond (DE000A254NA6), which matures in 2024. Among other things, it is a matter of extending the maturity to December 2029 and deferring the interest due in December 2023. It is to be voted on from July 28 to July 30. "That's quite a hammer," notes Brunner. The bond, which is still worth 300 million euros, was already under pressure before, but then lost again and is currently trading at just 5.44 percent. The bond issued by Publity (DE000A254RV3), a financial investor in commercial real estate affiliated with Preos, also suffered heavy losses.

Brunner