Bonds: „Bond bears are firmly in control“

Downward trend in yields could be broken

The analysts at LBBW assume that the trend in yields will not reverse in the foreseeable future. Looking at the price trend of the past few days, they expect the interim consolidation to be ‘only a brief respite before a new phase of weakness sets in’. Falling bond prices would be synonymous with further rising yields. According to LBBW, ‘the bond bears’ are currently firmly in control. In addition, market technology could also play into the bears' hands. ‘In particular, a jump above the 4.50 per cent mark could trigger a new wave of selling,’ the experts predict with reference to the downward trend (since autumn 2023) of the ten-year yield at this mark. In this scenario, the annual high of around 4.70 per cent would come into view as the next important mark.

Against this backdrop, demand for US government bonds is also tending to increase on the Frankfurt Stock Exchange. Arthur Brunner from ICF Bank reports ‘good turnover in US bonds’. For example, a government bond maturing in 2030 is being bought, which only pays a coupon of 0.625 per cent, but still offers a yield of 4.4 per cent at current prices of around 82 per cent until maturity (US912828ZQ64). ‘Some investors have jumped on the bandwagon here,’ explains the bond trader.

US Federal Reserve in no hurry to cut interest rates

In view of the strength of the domestic economy and the announcement of import tariffs, the euphoria that has prevailed on the stock markets in particular since the US election is increasingly being mixed with concerns about an imminent comeback of inflation. This is one reason why the US Federal Reserve could ease up on its interest rate cuts. According to the latest statement by Fed Chairman Jerome Powell, time can be taken to decide on the further pace of interest rate cuts. ‘The economy is not sending any signals that we need to be in a hurry to cut rates,’ was the decisive sentence from Powell on Thursday, according to Deutsche Bank.

Tim Oechsner from Steubing AG therefore also assumes that the Fed is more likely to take a wait-and-see approach and adopt a slower course. ‘As in Trump's first term in office, the Fed is unlikely to anticipate what might happen politically, but rather react,’ explains the trader. Klaus Stopp from Baader Bank reports, with reference to the futures markets, that expectations of interest rate cuts have recently ‘dampened’. According to the report, only a good 62 per cent of market participants still expect the Fed to cut interest rates in December. A month ago, this figure was still over 85 per cent. The ‘probability’ of two consecutive interest rate cuts in December and January based on this data has even fallen from 64 per cent to just 17 per cent.