Bonds: Strong rise in yields

Great Britain: New Liz Truss moment

However, it was primarily the UK that made waves. British government bonds fell sharply this week, as did the British pound. “In addition to general inflation concerns, confidence in British budgetary policy is also said to have deteriorated,” explains analyst Ralf Umlauf from Helaba.

Memories of 2022 came flooding back, when the British government under Prime Minister Liz Truss wanted to cut taxes but had no counter-financing. In any case, ten-year yields on British government bonds rose to 4.92% this week, the highest level since 2008. For thirty-year Gilts, the peak was 5.47%, the highest level since 1998, according to Deutsche Bank. 

Greece safer than France?

However, debt in the eurozone also remains an issue: “The weakness of French government bonds stands out in the development of yields in the various eurozone countries, whose ten-year spread over German government bonds has settled at over 80 basis points, up from around 50 basis points a year ago,” notes Siemßen. “There is still a long way to go before a solution is found to the budget dispute in France.” The yield premiums on Greek government bonds, on the other hand, have narrowed further and fiscal consolidation is progressing. “The market considers Greece to be safer than France in some cases.”

Corporate bonds. “Almost only purchases, across the board”

Meanwhile, corporate bonds are doing well. “Due to the rise in yields, we are seeing almost exclusively purchases, across all maturities and sectors,” reports Gregor Daniel from Walter Ludwig Wertpapierhandelsbank. “In view of the problems with US government bonds, some people are apparently preferring to invest in corporate bonds with good credit ratings.” Companies such as Lufthansa (XS2892988275) are on the shopping lists. However, an Otto hybrid bond with a yield of 4 percent (XS1853998182) is being sold. At ICF, Paragon bonds (DE000A2GSB86) are in demand, “without any corporate news behind them”, as Brunner notes.

Generally popular with ICF and Walter Ludwig: corporate bonds in US dollars. “This is due to the yield spread to German bonds and the dollar,” explains Brunner. According to Daniel, Turkish lira bonds are also still in demand, this week for example from JP Morgan with 0 percent until 2032 (XS2381801476). These are betting on an appreciation of the lira, as inflation in Turkey has recently fallen significantly. 

Many new issues

As usual at the beginning of the year, there are also many new issues in the corporate sector. “We also expect interest rates to continue to rise and want to refinance at favorable terms,” says Brunner. The energy group Eon has issued two bond tranches with a total volume of 1.75 billion euros, as Daniel reports. One offers 3.5 percent until 2033 (XS2978594989), the other - a green bond - 4 percent until 2040 (XS2978482169). As a result, old Eon bonds came under selling pressure, especially the one issued just under a year ago with a maturity of 2044 and a coupon of 4.125 percent (XS2791960664). “However, this was immediately used for purchases,” explains the trader.

By Anna-Maria Borse, 10 January, 2025, © Deutsche Börse