Bonds have been more popular before.

First, the low interest rate policy of the central banks caused their yields to fall into the abyss.

It was left to specialists among asset managers to find solutions.

One of them is Hamburg-based Nordix Capital.

With her funds, she pursues special strategies, such as exploiting valuation differences using interest rate and credit derivatives.

But now things have started to change, says Jens Franck, head of portfolio management.

"The central banks are finally taking action, although the question is still whether the ECB in particular can combat the root causes, i.e. the supply shock caused by war and the pandemic."

Martin Hock

Editor in Business.

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Franck is not sure how far interest rates will rise.

This is due to the dilemma between recessionary tendencies and a new inflation equilibrium.

It is clear that disinflation is history, as are the extremely low interest rates.

The latter has positive effects for the financial sector, for example for insurance companies, which have to set aside less capital due to higher discount rates.

For banks, on the other hand, it is not just about rising interest rates, but also about a steeper yield curve.

Your business is maturity transformation: cheap short-term borrowing and expensive long-term lending.

Franck thinks the banks are in good shape.

"By the beginning of 2020, the banks were no longer part of the problem, even if, like all companies from saturated sectors, they face a number of challenges." But their interest results, for example, have recently improved significantly.

Subordinated bonds in particular offer good opportunities.

“Of course, the subordinated bond construct entails a fundamental risk.

But in the end it depends on the creditworthiness of the bank, on the fact that the debts that can be offset against the liable equity capital can be serviced.”

Compared to other sectors, banks have the advantage that they are highly regulated, which reduces the risks.

The Basel III rules would bring profitability visibility like never before.

The times when banks could have offset good and bad business crosswise are over.

Franck explains from history that subordinated bonds from state-controlled banks in Europe, of all things, have initial yields of 9.5 percent.

“The skepticism is still there, and there are fears that a recession in the real economy could affect the financial sector.

In addition, bank bonds have not benefited from the central banks' purchase programs because they did not buy any bank bonds in view of the conflict of interests with the task of banking supervision.

However, caution should be exercised when it comes to high-yield bonds.

A lot of trust is needed here, and a recession could also harm issuers.