22/11/24 13:38:35

Bonds: “High demand for US government bonds”

Higher yields and the extremely strong US dollar - US Treasuries are in demand. But German government bonds are also more popular again, partly due to the war in Ukraine.


22 November 2024 FRANKFURT (Frankfurt Stock Exchange). Extremely weak economic data for the eurozone, escalation in the Ukraine war - after moving sideways for much of this week, Bund yields fell sharply on Friday morning. “It could hardly have been much worse,” explains Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, with a view to the sharp fall in the Purchasing Managers' Index. “The ECB will probably stick to an interest rate cut of 25 basis points.”

Then there are the geopolitical risks. “The escalation of the Ukraine war is supporting government bonds from Germany and the USA, which are considered safe,” reports Tim Oechsner, who trades bonds for Steubing AG. “The traffic light is yellow, the uncertainty is palpable.” Ten-year German government bonds are yielding 2.24 percent on Friday afternoon, well below the level of yesterday and a week ago.

Higher inflation and fewer interest rate cuts are expected for the USA under the new US President Trump, which will keep yields higher in the USA. Ten-year US government bonds are currently yielding 4.40 percent.

US bonds are doing well

According to Arthur Brunner of ICF Bank, higher yields on US Treasuries and the strong US dollar are boosting demand for US government bonds. Oechsner reports good turnover for long-term bonds from Belgium (BE0000355645) and the USA, both maturing in 2053 (US912810TV08), which are currently yielding 3.39 and 4.65 percent respectively. Also in demand: Italian government bonds maturing in 2031 (IT0005436693) and Romanian bonds maturing in 2035 (XS1313004928).

Gregor Daniel from Walter Ludwig Wertpapierhandelsbank sees good turnover on both sides for bonds issued by the European Bank for Reconstruction and Development in Turkish lira maturing in 2036 (XS2795696108). The yield is currently 34.4 percent. “Bonds in Turkish lira are generally more in demand again, so people are probably betting on the future.” Turkey has changed course and is fighting inflation, quite successfully. However, the inflation rate in October was still 48.6 percent compared to the previous year.

Arthur Brunner

Mercedes and Lanxess in demand

In Steubing AG's corporate bond business, Mercedes-Benz bonds maturing in 2026 with a current yield of 2.42% (DE000A2AAL31) and Lanxess maturing in 2027 with a yield of 2.83% (XS2383886947) are in demand. Daniel reports sales for the 2029 maturing bond of the Viennese real estate developer UBM Development (AT0000A3FFK1). At the current price of 95.10 percent, the yield is 8.24 percent.

According to Brunner, there were larger price losses this week for some SME bonds, specifically Pandion (DE000A289YC5), Neue ZWL Zahnradwerk Leipzig (DE000A351XF8) and Semper idem Underberg (DE000A30VMF2). However, there is no concrete company news. “Rather, there is a larger sell order behind it.”

Gregor

News from Deutsche Telekom

It has become quieter in terms of new issues, as traders report. “The end of the year is approaching,” notes Rainer Petz from Oddo BHF. Brunner refers to a new Deutsche Telekom bond maturing in 2035 with a coupon of 3.25 percent (XS2948768556). The denomination of 1,000 euros is small investor-friendly.

By Anna-Maria Borse, 22 November 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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