21/02/25 12:52:49

Bonds: “More defense spending, more bond issues”

The fact that Europe will probably have to spend a lot more money on defense in the future is also reflected on the bond market. Yields rose. ECB member Schnabel's hesitant statement on further interest rate cuts also contributed to this. 


21 February 2025 FRANKFURT (Börse Frankfurt). The Trump/Selensky conflict, the Bundestag elections, interest rate speculation - there are plenty of market-moving topics at the moment. “Sentiment on the bond market is influenced by a combination of geopolitical factors, economic indicators and politics,” reports Tim Oechsner, who trades bonds for Steubing AG. Yields have risen in a weekly comparison. Ten-year German government bonds peaked this week at 2.55 percent - not far below the January highs. On Friday morning, it is still 2.5 percent.

“The main reason for the rise in yields appears to be concerns about more bond issues and also increasing inflationary pressure,” explains bond analyst Hauke Siemßen from Commerzbank. This is because Trump's actions with regard to Ukraine are making higher defense spending in Europe increasingly urgent. “To finance this, the countries in the eurozone are likely to increase their bond issues, which suggests that yields will tend to rise.” 

Unrest after Schnabel's comments

This week, doubts also arose about the ECB's future course of action. In an interview published on the ECB's website on Wednesday, Governing Council member Isabel Schnabel spoke of a possible pause in interest rate cuts. “We are approaching the point where we may have to pause or stop the interest rate cuts”, she also explained in the Financial Times. She did not know what would happen at the next meetings, but the discussion would have to begin.

The federal election on Sunday is also on the agenda. According to Oechsner, however, it has not yet had any influence on the market. “If the election results are unclear and there are prolonged coalition talks, yields on German government bonds could rise,” he says. Because that would weigh on investor confidence. “This is all the more true if there is a weak government that is unable to implement the necessary reforms.” 

Arthur Brunner

MTU, Mutares and Multitude in demand

It's business as usual in corporate bond trading. Good demand for the MTU bond maturing in 2031 with a coupon of 3.875 percent (XS2887896574) was reported by Gregor Daniel from Walter Ludwig Wertpapierhandelsbank. “MTU has achieved a record year, despite the engine recall,” reports the trader. However, the share had lost considerable ground.

Arthur Brunner from ICF Bank is seeing very high turnover for bonds from the investment company Mutares maturing in 2027, which are currently yielding 13 percent (NO0012530965). “Demand is very good at prices of around 97 percent.” Also in high demand: the Multitude Capital bond (NO0013259747), like the Mutares bond in Nordic format.                                  

US dollar bonds also continue to be well received. According to Daniel, a McDonald's bond maturing in 2035 (US58013MEZ32), for example, is on the shopping lists. Current yield: 5.14 percent. 

News from Eli Lilly and Johnson & Johnson

There were a lot of new issues this week, as Brunner reports: “Cisco, Kraft Heinz, Hershey - there were a lot of big names.” Oechsner mentions new bonds from Eli Lilly (US532457CV84, <US532457CW67) and Johnson & Johnson (US478160DJ00, US478160DH44) with maturities between 2028 and 2032 and coupons between 4.55 and 4.9 percent. The minimum investment amount is 2,000 US dollars in each case.

In the area of government and government-related bonds, Oechsner names new securities from NRW.Bank (DE000NWB0AY4), the European Stability Mechanism ESM (EU000A1Z99W5), the European Investment Bank EIB (EU000A4D6KN5) and the European Financial Stability Facility EFSF (EU000A2SCAS8). These offer coupons of between 2.375 and 2.875 percent with maturities between 2030 and 2035.

By Anna-Maria Borse, 21 February 2025, © 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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