Bonds: “Strongest rise in yields since 1990”
The fact that the new German government is likely to take on high levels of debt for defense and infrastructure has sent yields soaring. And for the ECB, it now looks like an “interest rate pause” after this week's rate cut.
7 March 2025 FRANKFURT (Börse Frankfurt). Rapid rise in yields on German government bonds - the spending plans of the expected new German government are leaving deep marks on the bond market. The reason: many more government bonds will now have to be issued. DekaBank speaks of a “game changer”. Yields on ten-year Bunds, which were still at 2.37% a week ago, rose to a peak of 2.93% yesterday (Thursday). By midday on Friday, it was still 2.82 percent.
“That reminds me of the fall in prices and rise in yields after the fall of the Berlin Wall,” remarks Gregor Daniel, who trades bonds for Walter Ludwig Wertpapierhandelsbank. “There hasn't been such a sharp rise in yields on German government bonds since 1990,” Commerzbank analyst Hauke Siemßen also notes. Yields on shorter-dated Bunds also climbed, albeit less sharply.
“Enough investors, but at what price?”
The plans of the future German government: Defense spending amounting to more than 1 percent of GDP is no longer to be taken into account in the debt brake. There is also to be a special fund of 500 billion euros for infrastructure. However, the “old” Bundestag still has to approve the plans.
It is expected that the federal government will have to pay higher interest on the large amount of debt. However, demand will be found, says Siemßen. “Even in the current market environment, the German Finance Agency was able to issue a new thirty-year federal bond on the capital market, which even enjoyed high investor demand,” he explains. This underlines the fact that the federal government is not concerned with whether it will find enough investors for the necessary government bond issues, but rather at what price.
“There is much to suggest an interest rate pause in April”
A further interest rate cut by the ECB went somewhat under the radar this week. The deposit rate now stands at 2.5 percent. Statements by ECB President Christine Lagarde also indicate that further interest rate cuts are no longer quite so clear. “The probabilities have shifted and there is a lot to be said for a pause in interest rates in April,” explains bond trader Tim Oechsner from Steubing AG.
Today's US labor market report is important for the USA and the further development of key interest rates there. “If the labor market situation were to deteriorate, central bankers would probably be much more inclined to cut interest rates again,” comments analyst Ralf Umlauf from Helaba.
Tim Oechsner
Extreme long-dated bonds popular
Some very long-dated government bonds are in demand, as Daniel reports. Examples: Spanish bonds maturing in 2040 and 2071 with current yields of 3.81% and 4.06% (ES00000120N0, ES0000012H58). A bond from Austria maturing in 2037 and currently yielding 3.24 percent (AT0000A04967) is also in demand. Brunner also sees high demand for government bonds with maturities of 15 or 25 years.
Eon, Mercedes and Deutsche Bank in demand
In corporate bond trading, securities from Eon and Mercedes-Benz with maturities to 2044 and 2031 and yields of 4.2 and 3.25 percent (XS2791960664, DE000A3LH6U5) are well received, as Daniel observes. Brunner reports that Volkswagen bonds maturing in 2028 and currently yielding 3.15 percent (XS2152061904) are also on the shopping list. “The quarterly figures from Deutsche Rohstoff (DE000A3510K1) were also well received.” The bond maturing in 2028 is currently trading at 111 percent, which corresponds to a yield of a good 4 percent.
Arthur Brunner
Oechsner reports good turnover for bonds issued by Deutsche Bahn until 2037 (XS2577042893), Würth until 2031 (XS2911681083), Deutsche Telekom until 2028 (XS1382791975) and Mercedes-Benz until 2026 (DE000A3LH6T7). The current yields are 3.41%, 3.22%, 2.47% and 2.39%. US dollar bonds, such as those from John Deere maturing in 2030 and currently yielding 4.47% (US24422EWZ86), are also popular.
According to Brunner, the fact that soccer club Hertha BSC agreed to repay its bond maturing in November (SE0011337054) was welcomed. He registers sales on both sides for The Platform Group (NO0013256834).
Metro and Verve with new bonds
According to Oechsner, news came from the retail group Metro, among others: the bond offers 4 percent until 2030 (XS3015684361). In addition, the Verve Group, formerly Media & Games Invest, has placed a new bond worth 500 million euros, as Brunner reports. The term is four years and the interest rate is variable at 3M Euribor plus 4 percent (SE0023848429). The new issue is intended to repay the bonds maturing in 2026 and 2027 (SE0018042277, SE0019892241).
By Anna-Maria Borse, 7 March 2025, © 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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