Bonds: “Unimpressed” by central bank decisions

“Interest rate freeze” in the USA, interest rate cut in the eurozone - hardly anyone expected anything else. In corporate bond trading, VW, Fraport and MTU securities are doing well, as are some SME bonds. 

31 January 2025 FRANKFURT (Frankfurt Stock Exchange). They delivered as expected - the central bank meetings in the USA and the eurozone came as no surprise. “The markets were therefore fairly unimpressed,” reports Arthur Brunner, who trades bonds for ICF Bank. At its meeting on Wednesday, the US Federal Reserve left key interest rates unchanged in the range of 4.25 to 5 percent. At its meeting yesterday, the ECB lowered its key interest rate by 25 basis points and the deposit rate now stands at 2.75 percent. Inflation is on track and will reach the target value of 2 percent in the course of the year, it said.

Eurozone: “Door open for further interest rate cuts”?

“In view of the high level of political uncertainty, the ECB remains data-dependent and will decide from meeting to meeting,” explains DWS economist Ulrike Kastens. In her opinion, the ECB has nevertheless opened the door a little wider for further interest rate cuts. She assumes that the issue of a “sluggish economy” will play an even greater role in the future. This is because the economies of the core countries - with the exception of Spain - have recently shrunk. “In our opinion, further interest rate cuts are in the pipeline. Reaching a neutral interest rate of 2 percent in June 2025 could be an important interim target.”

Yields have fallen slightly compared to the previous week. Ten-year German government bonds are yielding 2.48 percent on Friday afternoon, compared to 2.53 percent a week ago. In the USA, it is currently 4.53 percent after 4.63 percent last Friday. 

According to Brunner, Neue ZWL Zahnradwerk Leipzig is in demand in the SME bond segment, such as the one maturing in 2027 with a coupon of 7.75 percent (DE000A30VUP4). Also in demand: Bonds from Score Capital, the financing specialist for professional football clubs, with 8 percent until 2027 (DE000A383V65).

US dollar bonds are also on the shopping lists. “The higher key interest rates are making themselves felt,” explains Brunner. One example: bonds from US chemical giant Dow Chemical with a 7.375 percent coupon and maturity in 2029 (US260543BJ10), which are currently yielding 5.08 percent. 

Deutsche Telekom with new bonds

New issues were quiet this week. Deutsche Telekom raised fresh money, private investor-friendly with denominations of 1,000 euros, as Mägerle reports. The bond offers 3 percent until 2032 (<XS2987630873), another tranche 3.625 percent until 2045 (XS2985250898).

Brunner announces a new Austrian government bond in - “curiously” as he says - Swiss francs. The bond maturing in 2035 has a coupon of 0.682 percent (CH1418473448). “In euros, Austria would have had to pay around 2.82 percent.”

By Anna-Maria Borse, 31 January, 2025, © Deutsche Börse