01/11/24 12:46:44

Bonds: Further price losses

Fading hopes of interest rate cuts and uncertainties regarding the US election are putting pressure on government bonds. Above all, however, it is currently a case of wait and see - ahead of the US election on Tuesday and the Fed meeting on Thursday.


1 November, 2024 FRANKFURT (Frankfurt Stock Exchange). The weakness on the bond markets has continued, with yields rising once again - and sharply. One important reason: the US elections next week, which are causing uncertainty. “It is becoming increasingly clear that the states will not save, neither the USA - regardless of who wins - nor Europe, including Germany,” notes Arthur Brunner from ICF Bank.

There are also other reasons for the higher yields: “The inflation figures for the eurozone showed a surprisingly strong rise in prices, which has called into question rapid interest rate cuts by the ECB,” explains analyst Hauke Siemßen from Commerzbank. This has led to rising yields, particularly at the short end of the curve. In addition, the budget plan presented in the UK for next year envisages higher government bond issues than expected. “The resulting rise in yields in the UK spilled over into Europe.”

The yield on ten-year German government bonds climbed above 2.45 percent at its peak and was still at 2.42 percent at midday on Friday - compared to 2.27 percent a week ago. Ten-year US Treasuries are currently yielding 4.30 percent after 4.19 percent last Friday.

US election and Fed meeting dominate the week

A rate cut of either 0.25 or 0.5 percent is firmly expected for next week's US Federal Reserve meeting. “The probability of the Fed cutting interest rates has worsened,” notes Tim Oechsner from Steubing AG.

As far as the US election is concerned, the probability of a Trump victory has recently increased. This could drive up government spending even more - resulting in many new bond issues and thus rising interest rates. “But Mrs. Harris is also likely to increase government spending further,” says analyst Siemßen. The long US Treasury yields would therefore probably continue to rise. “As US yields often set the global direction, Bund yields could also continue to rise.” 

Oechsner

Argentina's government bonds more popular

By contrast, yields have fallen for Argentina this year. “Argentine government bonds are in demand again,” says Brunner. Investors are backing President Javier Milei's course. “The yield premium of Argentinian government bonds over US bonds has fallen below 10 percent.” The bond traded at ICF with a maturity date of 2038 and a coupon of 4.25 percent was still trading below 25 percent a year ago, now it is 52.90 percent (XS2177365017). 

Arthur Brunner

Deutsche Post, Wienerberger and Würth in demand

There is currently strong demand in corporate bond trading at Steubing AG for securities from Deutsche Post (XS2784415718), Wienerberger (<AT0000A37249), Fresenius Medical Care (XS2178769159), Würth (XS2911681083) and Mercedes (DE000A3LSYH6) with maturities between 2028 and 2036 and yields between 3.10 and 3.42 percent. According to Brunner, short-dated bonds are particularly popular among auto bonds, such as the BMW bond maturing in 2026, which currently yields 2.82 percent (XS2625968693).

Gregor Daniel from Walter Ludwig Wertpapierhandelsbank also reported purchases of the Fraport bond maturing in 2032 with a current yield of 3.66% (XS2832873355) and the Mercedes bond maturing in 2030 with a yield of 3.25% (DE000A382988). Bonds from Südzucker (XS0222524372) came under selling pressure, as reported by Brunner. The sugar group expects a further decline in profits and had already lowered its forecast for the financial year in mid-September. 

Gregor

Losses for Grenke after profit warning

Grenke was also the topic of discussion once again. The leasing specialist cut its profit target for the current year on Wednesday due to higher payment defaults as a result of increasing company bankruptcies. The share has now fallen to its lowest level for over ten years. Brunner sees losses for the Grenke bond maturing in 2029 (XS2905582479), Daniel for the bonds maturing in 2026 (XS2630524986).

According to Daniel, there was slight profit-taking on Semper idem Underberg (DE000A383FH4) in the SME bond segment. However, the spirits manufacturer's bond maturing in 2030 is still trading at 103.15 percent. This results in a yield of 5.11 percent. 

From Anna-Maria Borse, 1 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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