Bonds: "Deceptive inflation figures?"
Following Fed Chairman Jerome Powell's speech in Jackson Hole last weekend, the focus of the stock markets this week was on the ECB's interest rate policy. However, there was hardly any change in yields. However, there were larger movements in some corporate bonds.
30 August 2024. FRANKFURT (Börse Frankfurt). The probability of an interest rate cut by the ECB on September 12 has risen further. This is due to the continuing trend towards falling inflation rates. This morning, the statistics office Eurostat reported that inflation in the eurozone fell from 2.6 percent in the previous month to 2.2 percent in August. Lower energy prices were the main reason for this. The strategists at DWS see the data as an “important piece of the puzzle for the growing confidence that the inflation target of two percent can be achieved”. Like almost all market participants, they expect key interest rates to be cut by 25 basis points in two weeks' time.
The problem with the base effect
However, the analysts at NordLB warn against too much euphoria over interest rate cuts. In their view, base effects (energy prices have fallen since fall 2023) could cause inflation to pick up again somewhat in the coming months. The head of the Bundesbank, Joachim Nagel, also fears this, pointing to the continuing sharp increases in service prices. As a result, inflation could remain above the monetary authorities' target of 2.0 percent until well into 2025. ECB Director Isabel Schnabel also urges caution. The pace of policy easing should not be mechanical and must be based on data and analysis.
On the bond markets, the inflation data has been accepted with a certain shrug of the shoulders. “The figures have not been reflected in the prices of government bonds,” explains Arthur Brunner from ICF Bank. The yield on 10-year German government bonds currently stands at 2.25 percent, unchanged in the range between 2.10 and 2.30 percent that has been intact for several weeks. “Since the beginning of August, there have been repeated attempts to break out of the zone,” describe Helaba's strategists. In their opinion, the fact that the breakout failed again this time is due to the fact that a cut in key interest rates by 25 basis points in September is already “around 100 percent discounted”.
It has to be the “three before the decimal point”
Overall, trading on the Frankfurt Stock Exchange continues to be quiet, as Klaus Stopp from Baader Bank confirms. “We are still in the middle of the summer slump”. As evidence of this, the bond trader points to the canceled issue of a planned bond from the Austrian government with a term until 2086, “something like this is extremely rare”. Federal bonds are currently being bought where the yield is “still a three before the decimal point”. As is the case with the bond maturing in February 2025 (DE0001102374).
According to Rainer Petz from Oddo BHF, there is also relatively little movement overall in corporate bond trading. Two Lufthansa bonds in 1,000 euro denominations with coupons of 3.625% and 4.125% and maturities until 2028 and 2032 respectively (XS2892988275 and XS2892988192) are very fresh on the market. Stopp also reports buying interest in a bond from car manufacturer BMW (XS2887901911) maturing in August 2034.
Leap of faith for Argentina
At ICF Bank, Brunner reports good demand for a new bond from Light AcquiCo (NO0013252452). The company announced in June that it was acquiring Frankfurt-based LifeFit, one of the leading health and fitness platforms in Germany. It is also buying an Argentina bond maturing in 2046 (XS2177365520), which had fallen to 17% at the end of 2022 and is now trading at 44%. “The new government is perceived by investors as a more reliable debtor and the austerity measures are being rewarded,” explains the trader.
Gregor Daniel from Walter Ludwig Wertpapierhandelsbank is seeing increased selling in the bond of wind farm developer PNE (DE000A30VJW3), which was already very actively traded last week. In the two previous weeks, the PNE share had already been sold off significantly, which prompted the Management Board to reconfirm the annual forecast. While the share subsequently recovered somewhat, the bond has now been sold and the price has fallen by around 4 percent. The yield has climbed to 6.3 percent with a term until June 2027. A bond issued by the ailing agricultural trading company Baywa (DE000A351PD9) is also under pressure. Its price plummeted to 30 percent in July due to the threat of insolvency, but was subsequently able to recover to over 50 percent. The bond is now trading below 40 percent again.
US corporate bonds are in demand
According to Agon Alihajdari, bonds from Fraport (XS2198879145), Norddeutsche Landesbank (DE000NLB4XM6) and the American John Deere Capital are currently popular at Steubing AG. The US manufacturer of agricultural and forestry materials and equipment recently reported mass redundancies and a relocation of production to Mexico. The bond, which matures in September 2033, has risen from 99% to 105% since April and is currently yielding 4.5% (US24422EXE49).
Von Thomas Koch, 30 August 2024, © Deutsche Börse
Deutsche Börse 
