FRANKFURT (DEUTSCHE-BOERSE AG) - The French election continues to have the markets firmly in its grip. French bonds are suffering. Corporate bonds from German names such as Fraport, Siemens, Bayer and Hochtief remain in demand.

June 28, 2024 FRANKFURT (Borse Frankfurt). Nervousness is high ahead of the first round of the French elections on Sunday. "Since the European elections and the announcement of new elections in France, there has been latent uncertainty on the market," says Rainer Petz from Oddo BHF, describing the situation.

German government bonds, which are considered safe, are therefore in demand and yields have recently risen again. Ten-year Bunds are yielding 2.44 percent on Friday morning after 2.41 percent a week ago. The risk premium for ten-year French bonds over German bonds has risen again to currently 82 basis points - the highest level since 2012.

There are fears of a sell-off in French government bonds after the elections. Meanwhile, German Finance Minister Christian Lindner has announced that he will have the ECB's possible intervention in the event of a sell-off legally examined, according to the Bloomberg news agency. A strong intervention by the ECB would raise a number of economic and constitutional questions, Lindner explained at an event organized by the Ifo Institute in Munich.

Speculation about key interest rate cuts

Overall, traders are reporting quiet business with declining turnover. "Many market participants are entering 'summer mode'," explains Tim Oechsner from Steubing AG. Today at 2.30 pm our time, however, the latest PCE price index for the USA, the US Federal Reserve's preferred inflation measure, will be published. "Deviations from expectations could trigger considerable swings on the bond markets," says Oechsner.

There is still much speculation about the date of the next ECB and first Fed interest rate cut. According to Deutsche Bank, a further interest rate cut by the ECB by September is priced in with a 79 percent probability on the money futures markets, while a turnaround in interest rates by the US Federal Reserve is priced in with a 70 percent probability for September 18.

France's bank bonds weak, Fraport, Siemens & Co in demand

In corporate bond trading, French bonds remain under selling pressure, as Rainer Petz reports. "We are seeing this particularly in bank bonds." Apart from that, well-known German names continue to be well received. Fraport bonds, for example, are in demand, specifically the 4.25 percent to 2032 (XS2832873355) issued at the beginning of the month, as Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports.

Oechser reports good turnover for bonds from Bayer maturing in 2029 and currently yielding 3.6 percent (XS2630112014), Siemens maturing in 2028 and yielding 2.77 percent (DE000A1UDWN5), Fraport maturing in 2027 and yielding 3.45 percent (XS2198879145) and Hochtief maturing in 2027 and yielding 3.28 percent (DE000A2YN2U2).

Daniel sees price losses for a bond issued by the Viennese real estate developer UBM Development (AT0000A2QS11). UBM announced today that it had sold its shares in Center Wien Mitte. "However, other UBM bonds are unchanged."

News from Fraport, K+S, DKB and KfW

According to Oechsner, Hochtief has also launched a new issue on the market with a term until 2030 and a 4.25 percent coupon (DE000A383EL9). There are also new issues from K+S with 4.25 percent maturing in 2019 (XS2844398482), Deutsche Kreditbank with 3 percent maturing in 2030 (DE000DKB0531) and KfW with 2.75 percent maturing in 2027 (DE000A383B10).

By Anna-Maria Borse, June 28, 2024 © Deutsche Borse AG

(Deutsche Borse AG is solely responsible for the content of this column. The articles are not an invitation to buy or sell securities or other assets).