The sell-off in the bond market abated somewhat on Wednesday, but yields remained at high levels.

The yield on the ten-year Bund was 0.47 percent after hitting the highest level since October 2018 at 0.53 percent the previous day.

Interest rates on American government bonds have also risen.

At 2.415 percent, the yield on the ten-year Treasury was higher than it had been since mid-2019.

In addition, the inversion of the US yield curve intensified.

The yield on the five-year government bond was 2.429 percent, higher than the ten-year term.

An inverted yield curve points to recession fears on the bond market.

Markus Fruehauf

Editor in Business.

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With the lower interest rates for long maturities, investors are preparing for weak economic growth, which the central bank is trying to stimulate with interest rate cuts.

The recent sell-off was triggered by statements by senior officials from the US Federal Reserve (Fed) and the European Central Bank (ECB).

As the FAZ reported in its Wednesday edition, Bundesbank President Joachim Nagel held out the prospect of an increase in the key ECB interest rate before the end of this year.

Fed President Jerome Powell stepped up his rhetoric on the fight against inflation.

The central bank must take even stronger countermeasures in the fight against inflation.

Higher demand for new Bunds

So far, the market had priced in six rate hikes of 0.25 percentage points each.

Now, Powell said the policy rate could also be raised by more than 0.25 percentage point in one or more meetings.

The German government also felt that interest rates had risen again in its auctions of federal bonds in the first quarter.

Speaking on a conference call on Wednesday, Tammo Diemer, chief executive of the finance agency responsible for debt management, said demand had been good in the first three months after being somewhat more subdued in the final quarter of 2021 due to the not yet clear interest rate and inflation outlook.

Diemer attributed the higher demand not only to the higher interest rates, but also to the interest of investors in safe and liquid securities in the current environment, which is characterized by the Ukraine war.

Despite the announced supplementary federal budget and the planned Bundeswehr special fund, the finance agency will not increase its borrowing in the second quarter for the time being.

The issuing volume of 106.5 billion euros in the forthcoming second quarter, which was published in December, will remain the same, she announced on Wednesday.

However, adjustments are not excluded.

Diemer pointed out that additional expenditure would only be financed after the outflow of funds.

For one thing, the issuance could be adjusted in the third and fourth quarters.

On the other hand, the finance agency has its own holdings of 123 billion euros.

She can sell these federal bonds flexibly and at any time on the market.

In addition, the finance agency can use these own holdings with market participants as security for loans, so-called repo transactions.