Bonds: France pays more than Greece
The budget dispute in France is causing risk premiums on French government bonds to rise - to their highest level since the euro crisis. Greece is now considered more solid than France. The recent rise in inflation in the eurozone, on the other hand, leaves the markets cold.
29 November 2024 FRANKFURT (Frankfurt Stock Exchange). Uncertainty over France, weak purchasing managers' indices, the expectation of stronger interest rate cuts - yields on German government bonds have fallen little by little this week. “Despite the government crisis in Germany, Bunds are still the first choice,” notes Arthur Brunner from ICF Bank. France and the rising risk premiums for French government bonds remain a major topic. “Something is brewing,” says Brunner: ”A new euro crisis could be looming.”
This week, risk premiums for French government bonds have risen to their highest level since the euro crisis in 2012 at 90 basis points compared to German government bonds. “On Thursday, the yield on French bonds was temporarily at the same level as that of Greek government bonds for the first time,” reports Tim Oechsner, who trades bonds for Steubing AG. “Uncertainty is back, this time it's France.”
Euro crisis 2.0?
“The political situation in France and the resulting uncertainty about next year's budget are taking their toll,” explains analyst Hauke Siemßen from Commerzbank with regard to the massive criticism of the planned savings. Even a vote of no confidence in Prime Minister Barnier is possible. This would probably mean the end of the current government. Citigroup warned on Tuesday that the French spread over Bunds could reach 100 basis points faster than expected. Ten-year Bunds are yielding 2.12% on Friday lunchtime, compared to 2.24% a week ago.
Further ECB interest rate cuts firmly planned
The latest inflation data do not jeopardize further interest rate cuts in the eurozone. The figures for the eurozone published this morning show an increase in November to 2.3 percent. However, this is said to be due to base effects. The inflation rate for Germany had already been published yesterday; it was 2.2 percent in November and therefore also slightly higher than in October. “The ECB Governing Council members are likely to agree to cut interest rates by 25 basis points in December,” explains analyst Marco Wagner from Commerzbank. Even members of the “hawkish camp” such as Bundesbank President Joachim Nagel expect inflation to reach the target soon. Ralf Umlauf from Helaba expressed a similar view: “The developments in November will lose weight in the overall view of the figures and will not stand in the way of the ECB cutting interest rates again next month,” he said.
High turnover in Romanian bonds
Romanian government bonds are being traded heavily in both directions, as bond trader Rainer Petz from Oddo BHF reports. “The turbulence surrounding the election is making itself felt here.” Petz reports buying and selling for maturities up to 2033 with a current yield of 5.55 percent (XS2689948078) and up to 2050 with a current yield of 5.89 percent (XS2109813142). In the first round of the presidential election, the right-wing radical Georgescu had surprisingly won. The Romanian Constitutional Court has now ordered a recount of the votes due to doubts about the proper conduct of the election.
According to Oechsner, the Polish government bonds issued in October with a maturity date of 2039 and a current yield of 3.72 percent (XS2922764191) and European Union bonds with a maturity date of 2035 and a current yield of 2.66 percent (EU000A285VM2) are strong sellers.
Gregor Daniel from Walter Ludwig Wertpapierhandelsbank continues to see good demand for bonds issued by the European Bank for Reconstruction and Development in Turkish lira maturing in 2036 (XS2795696108). The yield is currently 33 percent. On the other hand, Mexican peso denominated bonds from the European Investment Bank EIB, which mature in 2027 and currently yield 8.74% (XS1547492410), are being sold.
EnBW, Mutares and Grenke in demand, Fortaco weaker
In the corporate bond segment, Steubing trader Oechsner reports good turnover for the bond issued last week by energy supplier EnBW with a yield of 3.75 percent until 2035 (XS2942479044). At ICF, bonds from Mutares (NO0012530965) and Grenke (XS2155486942) are being well received again.
According to Brunner, some SME bonds are under selling pressure. “The weak economy in this country is now being reflected in the figures of smaller and medium-sized companies,” he explains. One example: the bond issued by the Fortaco Group (NO0012547274), a supplier to the shipbuilding industry, which lost ground this week. “The sales target was missed,” explains Brunner. On the other hand, he sees purchases for the Werder Bremen soccer bond (DE000A3H3KP5). “Werder lost against Eintracht Frankfurt last Saturday, but delivered a good performance.”
According to Daniel, bonds denominated in Turkish lira are also occasionally in demand here, for example from Goldman Sachs with a maturity date of August 2025 and a current yield of 39% (XS2470215661). “Generally speaking, there is caution. If people are buying, they are happy to buy something with higher yields,” notes the trader.
Due to the Thanksgiving holiday in the USA yesterday (Thursday), the new issue business was rather quiet this week. Fresh on the market is a US dollar convertible bond from MicroStrategy with a coupon of 0 percent and maturity in 2029 (US594972AR21), as Oechsner reports.
By Anna-Maria Borse, 29 November 2024, © Deutsche Börse
About the author
Anna-Maria Borse is a financial and business editor specializing in the financial market/stock exchange and economic topics.
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