FRANKFURT (DEUTSCHE-BOERSE AG) – The sharp rise in interest rates has been slowed down – at least for the time being. According to the statements by Fed boss Powell, only moderate interest rate hikes are expected. Some new corporate bonds, such as from Katjes Green food is really popular.
December 2, 2022. Frankfurt (Frankfurt Stock Exchange). Statements by US Federal Reserve Chairman Jerome Powell are causing yields to fall, including in the euro zone. The fact that the latest inflation rates were lower than expected also contributed to the good mood on the equity and bond markets this week. “The mood has brightened due to the positive signals from the US Federal Reserve,” states Tim Oechsner from Steubing AG.
US Federal Reserve Chairman Jerome Powell made it clear on Wednesday that the time for large rate hikes of 75 basis points was over. “However, the doubts remain as to whether the Fed will actually slow down the rate hikes and at what rate,” notes Oechsner. Overall, it therefore remains volatile. “Risk-on and risk-off days alternate.” As Deutsche Bank notes, a key interest rate high (“terminal rate”) of 4.87 percent is now priced in for the USA in spring 2023 on the money market – after a good 5 percent previously. The first interest rate cuts in the second half of 2024 would also be priced in. “From today’s perspective, that seems a bit sporty.”
Interest rates: No increase in sight for now
In any case, yields have clearly fallen this week: the ten-year Bund yield is 1.78 percent on Friday morning after 1.88 percent a week ago. In October, it peaked at 2.53 percent. US government bonds of the same maturity are currently yielding 3.53 percent after 4.34 percent in October. According to Commerzbank’s Hauke Siemßen, a rapid recovery is not to be expected: “Since the ECB and Fed are likely to slow down their rate hikes in December, yields will probably not rise again.”
Yield premiums for Europe’s peripheral countries are also falling, such as those for Italian government bonds compared to Bunds. “The yield on ten-year Italian government bonds is again only 3.65 percent, the spread over federal bonds has fallen from a peak of 240 to 186 basis points,” explains Arthur Brunner from ICF Bank. In Siemßen’s opinion, however, the noticeable reduction in the yield difference is exaggerated. “Since more concrete plans to reduce the ECB’s balance sheet are likely to become public at the latest at the ECB meeting in December, we expect the yield differential to widen.”
Katjes bond tastes good to many
In the corporate bond business, the new Katjes Greenfood bond has developed into a real bestseller. “Demand from private investors is very high,” says Brunner. The bond just issued offers 8 percent until 2027 (DE000A30V3F1) and is now traded at 105.5 percent. According to Brunner, the new bond from Booster Precision Components (NO0012713520) is also doing well. “That should also be due to the attractive coupon.” The bond issued by the manufacturer of mechanical precision parts runs until 2026, the coupon (three-month Euribor plus 900 basis points) is currently 10.908 percent.
According to Brunner, the floater from Ferratum Capital Germany, which is due next April and currently has an interest rate of 7.002 percent (SE0012453835), and the Grenke bond, which is due in October 2023, is also popular at 1.5 percent (XS1910851242). “Ferratum is currently on a roadshow for a new bond to replace the old one.”
Gregor Daniel von Walter Ludwig reports a tendency to buy a ThyssenKrupp bond with a coupon of 2.875 percent that runs until 2024 (DE000A2TEDB8). “Moody’s has upgraded ThyssenKrupp to Ba3, which is well received.”
Metalcorp and Paragon gain ground
According to Daniel, Metalcorp securities have recovered somewhat after maturity extension and coupon increase (DE000A19MDV0). At the beginning of October, the company surprisingly admitted that it would not be able to repay the bond due on October 2nd. The course collapsed. In November, an agreement was reached with the creditors on extending the term to October 2023 and increasing the coupon from 7 percent to 8.75 percent. “But the uncertainty remains,” notes Daniel. “Otherwise the rate would not be 66 percent.”
Bonds from the troubled auto supplier Paragon (DE000A2GSB86) made a big jump, as Rainer Petz from Oddo BHF reports. The euro-denominated bond is now trading at 50 percent after 30 percent at the beginning of November. “Paragon is selling its AI subsidiary to Cariad, the VW Group’s software company.” The price of the Swiss franc-denominated Paragon bond (CH0419041105) is also pointing higher.
Shaky real estate company
Meanwhile, the real estate industry remains ailing, with Corestate (DE000A19YDA9) being an example. The Adler Group continues to be a major topic. Most recently, the highly indebted group has agreed with important creditors – including BlackRock and Pimco – to extend the term and increase the interest rate of the bonds due in 2024. The creditors also provide fresh, high-interest debt capital. “The euphoria was great at first, but then prices fell again,” notes Brunner. “Rescue isn’t in the bag yet.”
by: Anna-Maria Borse, December 2, 2022, © Deutsche Börse AG
(Deutsche Börse AG is solely responsible for the content of the column. The articles are not an invitation to buy or sell securities or other assets.)