The turnaround in interest rates has also reached the bond market.
While KfW issued a five-year bond with a zero coupon in April, it was already 1.25 percent in June and now just 2.5 percent for a three-year term.
That is 0.6 percentage points more than the guaranteeing owner of KfW, the Federal Republic of Germany, pays, and a very decent interest rate for a security with the best possible credit rating.
Daniel Mohr
Editor in Business.
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"There are ample coupons again in the bond markets for large investors like insurers and pension funds," said Konrad Kleinfeld, head of fixed income for SPDR ETF at State Street Global Advisors in Europe.
"They didn't get that for many years." Nevertheless, investors didn't exactly overrun KfW with purchase orders.
The planned issue volume of EUR 3 billion just came together.
KfW attributes this to the general market uncertainty and high volatility.
When in doubt, investors are currently holding back their money.
The year was also a tough one for bond investors.
The turnaround in interest rates was accompanied by considerable price losses.
"The synchronicity of the high losses for stocks and bonds so far this year is a unique environment, we have to go back more than a hundred years to find such a scenario," says Kleinfeld.
But he sees good prospects for the bond market.
"Well, with attractive coupons, bonds offer exactly the secure stream of income that many investors need." He does not see any major defaults by issuers in the face of a possible recession.
"In a late economic cycle and also in a recession, bonds often benefit," says Kleinfeld.
“So far we have only seen very few bond defaults, the ratings are currently being upgraded rather than downgraded.
Investors are focusing on secure bonds with a low probability of default.” Since, according to general market assessments, the end of interest rate hikes has not yet been reached, the bond expert expects further pressure on bond prices temporarily: “But the higher coupons compensate for this.” He is still observing a very low bond ratio among many investors.
State Street is the fourth largest wealth manager in the world with €4 trillion in assets under management and the third largest for ETFs.
American bonds in focus
The interest rate differential continues to speak in favor of the US dollar.
American government bonds with a ten-year term currently have a yield of a good 4 percent, with a two-year term even 4.5 percent.
The sharp hikes in interest rates have resulted in an inverted interest rate curve in America, usually a signal of a recession, although this indicator says nothing about the extent and timing of the recession.
After negative yields at the beginning of the year, Bunds now have a yield of 2 percent for short maturities and a good 2.3 percent for ten-year maturities.
A level that last existed more than eleven years ago.
A euro country like Slovakia currently offers even 4 percent for ten years.
Some corporate bonds are significantly higher, for example the Italian energy supplier Enel with 7.5 percent coupon for a dollar bond with a term of ten years.
For private investors, however, the situation on the bond market is still unfortunate.
For example, around 10,500 corporate bonds are listed on the Stuttgart Stock Exchange, Germany's largest trading center for bonds.
However, 84 percent of this cannot be invested by private investors.
With the PRIIP regulation, many corporate bonds have been classified by legislators as packaged investment instruments since 2018 and are thus excluded from access for private investors.
"We think this is a harmful situation for private investors," says Simon Guntrum, a regulatory expert at Boerse Stuttgart.
"Corporate bonds are very simple and easy-to-understand products, and the regulation for packaged investment instruments was actually intended for securitized derivatives and funds."
"There are prominent advocates in politics and regulators not to classify corporate bonds as packaged products, so a change in the regulation seems conceivable," says Guntrum.
So far, a product information sheet has been required for affected corporate bonds so that private investors can still trade them.
But the effort involved in creating such a sheet and updating it on an ongoing basis seems too high to the issuers of the bonds, especially since private investors do not play a major role in placing these bonds on the market.
One option is to be classified as a professional investor.
"But that's not so easy," says Guntrum.
"Certain criteria must be met, such as the minimum investable capital, the number of transactions on the capital market or professional experience in the financial sector."
It is also unfortunate for private investors that prospectus law in Europe requires a comprehensive securities prospectus if bonds are issued in denominations of less than 100,000 euros.
The issuers also shy away from this effort, so that the hurdle for investments is very high.
"The EU Listing Act, which includes the Prospectus Regulation, is also to be adjusted at the beginning of 2023 and the high effort involved in preparing the prospectus should be addressed," says Guntrum.
“But it is not foreseeable that there will be any simplifications that will give private investors better access to this market.
A regulation that is intended to protect private investors but leads to a de facto exclusion cannot be in the interests of the regulator," says Guntrum.