There were some price fluctuations this week, but the bottom line is that interest rate cuts are expected to continue. New bonds also came onto the market on a large scale - from governments and companies.
12 January 2024. FRANKFURT (Börse Frankfurt). 2024 - the year of interest rate cuts. The market remains convinced of this. The fact that inflation in the US rose more strongly than expected in December has hardly changed this. The annual rate rose from 3.1 percent in November to 3.4 percent in December, as was announced yesterday. The forecast had been for 3.2 percent.
"Although the data offered no obvious support for an early rate cut by the US Federal Reserve, the reaction of the markets was limited," Deutsche Bank describes the situation. "Not even the rise in core consumer prices to over 3.6 percent led to a significant correction," states Ulrich Wortberg from Helaba. Ultimately, key interest rates in the USA are still expected to fall by 125 basis points this year.
Lagarde on inflation: "The most difficult part is behind us"
According to Commerzbank, interest rate cuts of around 140 basis points are expected for the eurozone this year. However, the bank considers this to be "ambitious". "ECB Executive Board member Schnabel also seems to share this opinion, as she recently pointed out that it is too early to think about interest rate cuts," explains bond analyst Hauke Siemßen.
ECB President Christine Lagarde also made it clear yesterday (Thursday) that key interest rates will not be cut until inflation reaches 2 percent. However, according to her assessment, the "most difficult part is behind us". Yields have hardly changed in a weekly comparison: Ten-year German government bonds are yielding 2.18 percent on Friday lunchtime, compared to 2.17 percent a week ago.
Compared to the beginning of the year and the low in December, however, there is still a clear increase. "The rise in yields since the end of December is remarkable. This means that the start to the 2024 bond year has been weak," explains Tim Oechsner from Steubing AG.
Things are going well for Katjes and Mutares
Trading in corporate bonds is proceeding without any major anomalies. "Turnover is good, as it usually is in January," notes Rainer Petz from Oddo BHF. According to Arthur Brunner from ICF Bank, the Südzucker hybrid bond (XS0222524372) is popular. "People are always betting on a call, even if this is unlikely."
According to Brunner, the Katjes International (NO0012888769) and Mutares (NO0012530965) bonds maturing in 2028 and 2027 continue to be very well received. Both are now trading above 107 percent, which still results in yields of 5.2 and 10.4 percent. "Mutares has had a great year and was promoted to the SDAX in November," notes Brunner. Daniel observes purchases and sales in the PNE (DE000A30VJW3) and a Voestalpine bond (AT0000A27LQ1).
News from Eon, Commerzbank, Schaeffler, VW and Mercedes
The first two weeks of the new year were also dominated by new issues. "There are a lot of new bonds and demand is good," explains Petz. "Investors are looking for new investment opportunities and a yield pickup," notes Oechsner. The deals are heavily oversubscribed, making allocation correspondingly difficult. "Demand is not being satisfied, so there are additional purchases via the stock exchange on the secondary market."
According to Oechsner, the focus is on German names with - ideally - denominations of 1,000 euros. Steubing AG's order book includes two Eon bonds, one maturing in 2036 with a coupon of 3.75 percent (XS2747600109), the other maturing in 2031 with a coupon of 3.375 percent (XS2747600018). Also: a Commerzbank bond maturing in 2031 with a coupon of 4.625% (DE000CZ439T8), two Schaeffler bonds maturing in 2029 and 2026 with coupons of 4.75% and 4.5% (DE000A3823S1, DE000A3823R3) and a VW Leasing bond maturing in 2028 with a coupon of 3.875% (XS2745725155).
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Gregor Daniel from Walter Ludwig Wertpapierhandelsbank also reports on a new Mercedes-Benz bond maturing in 2027 with a coupon of 3 percent (DE000A3LSYG8). "However, demand is low and the coupon is probably too low for many." RCI Banque's new issue with 3.875 percent until 2029 (FR001400N3F1) also attracted little interest.
"Entice with higher yields"
The situation is similar for government bonds: "Spain, Italy, Belgium and Ireland came to the market with new bonds," reports Brunner. "Demand was good, partly because Asian investors are now buying European rather than US government bonds."
According to Bloomberg Intelligence, the US, UK, Eurozone and Japan will issue 2.1 trillion US dollars worth of new bonds in the coming weeks to fund their 2024 budget plans - a 7% increase on last year. "With most central banks no longer buying bonds, financial agencies now have to woo investors from around the world and entice them with higher yields."
By Anna-Maria Borse, 12 January 2024 © Deutsche Börse AG
Anna-Maria Borse is a financial and business editor specializing in the financial market/stock exchange and economic topics.
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