Bond market review 2024: More Normal, but far from Boring
Political and economic crisis continued, but normality finally returned to the bond market in 2024 - at least to some extent. Government bonds were well received, as were many corporate bonds. As long as the credit rating was right.
27 December, 2024 FRANKFURT (Frankfurt Stock Exchange). Falling inflation, falling base interest rates - the year 2024 was a year of normalization after the extreme inflation and sharp base interest rate hikes of previous years. In addition, the central banks' bond-buying programs have come to an end. “Risks are being correctly assessed again,” explains Arthur Brunner from ICF Bank. The yield curve has also normalized and is no longer inverted. This means that long-term interest rates are finally higher than short-term rates again.
“Inflation has dominated the market like never before,” notes Gregor Daniel, who trades bonds for Walter Ludwig Wertpapierhandelsbank. The significant fall in inflation has enabled central banks to lower base interest rates again. However, the low or zero interest rate environment that existed before the coronavirus pandemic is not back - interest rates are still there.
“The credo that there is virtually no alternative to equities is not true, bonds are an alternative,” notes Tim Oechsner from Steubing AG. Bonds from well-known companies were particularly in demand in 2024, mostly with terms of two to five years - or very long terms. Small denominations of 1,000 or 2,000 euros were also important. “However, the interest coupons must be interesting, the credit rating must be good and the business model must be intact.”
Oechsner
Rising inflation forecasts for the USA
The ECB reduced the interest rate for its main refinancing operations in four steps from 4.25% to 3.15% this year, while the US Federal Reserve cut its base interest rate in three steps, from 5.5% to 4.5%. However, the monetary policy decisions mainly affected shorter maturities, which saw interest rates fall over the course of the year. For ten-year German government bonds and US Treasuries, on the other hand, there was actually an increase on balance this year. The yield on ten-year German government bonds rose from 2.14% to currently 2.4%, with fluctuations between 1.93% and 2.71%. The yield on ten-year US Treasuries rose from 4.05 to 4.62 percent, with fluctuations between 3.60 and 4.74 percent. The latest trigger for higher yields: Concerns that inflation will rise again under US President Trump and that key interest rates will not be able to fall as sharply.
The year was not free of problems anyway, even for the eurozone. Doubts about France's creditworthiness arose. Due to the government crisis, the spread over ten-year German government bonds rose to its highest level since the financial crisis. The situation has since calmed down somewhat. “However, the spreads are still very high in historical terms,” says Brunner.
Government bonds: Argentina as a “high-flyer 2024”
Government and government-related bonds remained in high demand, especially those with short maturities. German and US bonds repeatedly acted as a “safe haven” in times of escalating crises, for example in Ukraine or the Middle East. The most traded bonds on the Frankfurt Stock Exchange this year were German government bonds with short maturities, specifically until 2024, 2025 or 2026. In addition, the focus was on French and Austrian government bonds, as well as bonds from the USA, Ireland and the Netherlands. At Steubing AG, bonds from the European Stability Mechanism (EU000A1U9944), the European Financial Stability Facility (EU000A2SCAG3), the USA (US912810TV08) and Portugal (PTOTEKOE0011) recorded the highest trading volume.
In addition to US dollars, other foreign currencies were also in demand. “Foreign currency bonds - especially in Turkish lira - have been ‘ rediscovered’ in recent weeks,” reports Daniel. One example: Bonds issued by the European Bank for Reconstruction and Development in Turkish lira maturing in 2036 (XS2795696108). The yield is currently 34.5 percent. Turkey is currently battling inflation, quite successfully. However, the inflation rate in November was still 47.1 percent compared to the previous year.
According to Brunner, Argentina was the “absolute high-flyer” on the government bond market. Thanks to President Javier Milei's austerity course, confidence in the South American country's public finances has increased enormously. “Since September alone, the risk premium on five-year Argentine bonds over US Treasuries has shrunk from 1,887 to 661 basis points,” reports the trader. The government bond maturing in 2030, which was still trading below 40 percent before Milei took office in December 2023, is now trading at 77 percent (US040114HS26).
Daniel
“Good” names are big sellers
“Good” names were popular in the corporate bond business, including numerous DAX companies. Bonds from Knorr-Bremse (XS1837288494), Mercedes-Benz (DE000A3LH6T7, DE000A2YNZX6), Porsche Automobil Holding (XS2615940215, XS2643320109), RCI Bank, VW, Grenke, Siemens, Deutsche Bank, Deutsche Telekom and Eon recorded the highest turnover for the year as a whole at Steubing AG.
However, the crisis in the automotive and real estate sectors did not stop at the bond market: individual bonds, such as those issued by automotive supplier Schlote Holding (DE000A2YN256), repeatedly came under pressure. The bond issued by Eschborn-based automotive supplier Standard Profil Automotive (XS2339015047) also fell significantly. The bond issued by commercial real estate investor Publity was also affected, now trading at just 11 percent (DE000A254RV3). Insolvency proceedings were opened against bond issuer Preos Global Office.
Many companies in other sectors also stumbled, such as agricultural trader Baywa. In July, the hybrid bond (DE000A351PD9) plummeted from 95% to below 30% following initial reports of problems at the company. Following the announced restructuring, it now stands at just under 43 percent.
SME bonds: “Challenging situation”
SME bonds developed very differently. “The situation is challenging for SMEs in view of higher interest rates,” says Brunner. “The last quarterly reports were below expectations in around three quarters of cases.” However, some SME bonds remain very stable and are trading above or around 100 percent, such as Abo Energy, Deutsche Rohstoff, Hoermann Industries, Karlsberg Brauerei, Katjes International, Multitude, The Platform Group and Semper Idem.
Brunner
Goldman and Grenke as front-runners
In the corporate bond segment, bonds from Goldman Sachs (XS2149207354), Grenke (XS2155486942), Wells Fargo (US949746SH57), VW (XS1865186677) and Mutares (NO0012530965) recorded the highest turnover on the Frankfurt Stock Exchange in 2024. Also strong in terms of turnover: shares of Südzucker, Mercedes Benz, Porsche, Lufthansa, BMW, Commerzbank, Siemens, Bayer and - in US dollars - Citigroup and John Deere. Among the smaller names, Abo Energy, Semper Idem and Karlsberg stand out.
Many new issues
There were also plenty of new issues in 2024. According to Gregor Daniel, new issues came from major German companies such as MTU Aero Engines (XS2887896574), Deutsche Lufthansa (XS2892988275), Fraport (XS2832873355), Mercedes-Benz (DE000A3LSYG8, DE000A382962, DE000A382988) and Eon (XS2791960664), but also foreign companies such as RCI Banque (FR001400N3F1) and smaller names such as Semper idem Underberg (DE000A383FH4) and Karlsberg Brauerei (NO0013168005).
By Anna-Maria Borse, December 27, 2024, © Deutsche Börse
Deutsche Börse 
