11/10/24 14:21:57

Bonds: ECB interest rate cut firmly priced in

Yields have risen again. Further rapid interest rate cuts in the USA are now considered less likely. In the eurozone, however, further cuts are expected as early as next week. France is also causing concern.


11 October, 2024 FRANKFURT (Frankfurt Stock Exchange). The significant fall in interest rates last week was short-lived. The market situation has normalized. The yield on ten-year German government bonds had almost slipped below 2 percent due to the escalating crisis in the Middle East, but also the euphoria of interest rate cuts. By midday on Friday, it had returned to 2.20 percent. The US consumer prices published yesterday (Thursday) did not bring any major changes. “Although the figures were slightly above expectations, market participants are still betting on interest rate cuts,” explains analyst Ralf Umlauf from Helaba.

Yields also rose again in the USA, with ten-year US Treasuries currently yielding 4.08 percent after 3.85 percent last Friday. The market is currently largely expecting the Fed to cut interest rates by 0.25 percentage points in November. The ECB is expected to cut interest rates again as early as next Thursday.

 

France is considered riskier than Spain

Another topic: French government bonds. After French President Macron surprisingly called new elections in the summer, yield premiums on French government bonds have risen significantly compared to German government bonds. “The new government has not yet been able to calm concerns about escalating government debt,” reports analyst Hauke Siemßen from Commerzbank. Yields on Spanish government bonds had even fallen below those of their French counterparts at the end of last week. “Investors are now demanding a higher risk premium for France than for Spain.”

Turkish lira bonds in demand

In trading with government and government-related bonds, some bonds in Turkish lira are still in demand, as Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports. Examples: Papers from the Council of Europe Development Bank - the development bank of the Council of Europe - with a coupon of 25 percent and maturity in 2027 (XS2593610103) and the European Bank for Reconstruction and Development with 27.5 percent until 2029 (XS2765026468). The yields are currently 37 and 33 percent. In August, the inflation rate in Turkey fell to its lowest level since July 2023, but was still at 52%.

Automotive suppliers lose ground

Bonds from the automotive industry remain under pressure to sell in corporate bond trading. “This is due to the ongoing bad news, such as the recent decline in car sales at Porsche,” explains Marcus Mielert from ICF Bank. Suppliers have also been affected. According to Mielert, a bond issued by Standard Profil Automotive (XS2339015047), a supplier specializing in sealing systems, has suffered heavy losses this week. “The slide has accelerated.” In the summer, it was still trading at over 90 percent, now it is only 67 percent.

The new issue of the spirits manufacturer Semper idem Underberg with 5.75% until 2030 (DE000A383FH4) continues to be well received, as Daniel reports. “Turnover is declining, however, and the share price is now over 103 percent.” 

Exchange offers from UBM and Nordwest Industrie

Daniel also reports purchases and sales for two bonds from UBM Development (AT0000A2QS11, AT0000A2AX04) and predominantly sales for another bond from the Viennese real estate developer (AT0000A35FE2). “The turnover is probably related to the new bond (AT0000A3FFK1), which is not yet listed.” The new issue, a green bond, matures in 2029, offers 7 percent and is linked to an exchange offer for the UBM bonds maturing in 2025 and 2026 (AT0000A2AX04, AT0000A2QS11), which runs until October 15.

In addition, according to Daniel, Nordwest Industrie Group is planning a new four-year bond with a coupon of around 9 percent, combined with the early redemption of the bond maturing in April 2025 with a coupon of 4.5 percent (DE000A2TSDK9). “The issue volume is expected to be 60 million euros, compared to just 15 million euros for the old bond,” notes Daniel.

From Anna-Maria Borse, 11 October 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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