Many people do not know that they are invested in the stock market.

But many do not know that their money is in bonds.

But life insurers, company pension schemes, the Riester pension: they all build partly on stocks, but to a much larger extent on bonds.

Daniel Mohr

Editor in Business.

  • Follow I follow

Kerstin Papon

Editor in Business.

  • Follow I follow

Government bonds from Germany that are “considered safe”, as the saying goes, are often particularly in demand.

Globally there is almost nothing that can hold a candle to this investment.

It is liquid, the debtor Germany is considered to have a good credit rating, so it is the ideal parking space for capital that should not be exposed to any major risk.

But then came 2022. And federal bonds with a term of ten years lost an average of 17 percent in value (the Dax only fell by 12 percent).

Bunds were thus ranked in the same order of magnitude as emerging market shares (also down a good 17 percent), which nobody would claim to be “safe” – on the contrary.

US Treasuries, considered the even greater safety anchor in global financial markets, fared even worse because of the size of the economy.

But above all because of the world's leading currency, the dollar.

Such government bonds brought a minus of 29 percent in 2022 – calculated in euros, i.e. the dollar exchange rate gains are already taken into account.

Otherwise it would look even worse.

There were only a few investments that performed even weaker in 2022.

The difference between bonds and stocks

Before some savers call their insurer to ask if their retirement provision is still secure: there is a key difference between stocks and bonds.

Nothing is lost with the loan as long as the debtor remains solvent.

Let's take the ten-year federal bond shown in the chart as an example.

It was issued almost exactly a year ago with the then usual coupon of zero percent and a price of just over 100 percent.

Many investors will have bought the bond expecting to get their money back in early 2032.

They knew they wouldn't get a coupon.

They wanted the safest possible parking spot for their money.

A year later, the bond is available at around 80 percent.

This is primarily due to the abrupt turnaround in interest rates and high inflation, but not to doubts about the solvency of the debtor, the Federal Republic of Germany.

Investors can therefore continue to expect their bonds to be redeemed at 100 percent in 2032 – albeit with a currency that may have had its purchasing power significantly reduced.

Is it a good time to buy bonds?

The question for investors to ask is, is now a good time to sell the bonds before inflation lowers redemption value even further, or is it perhaps a better time to buy?

After all, there is now a return of a good 2.3 percent per year until the end of the term, compared with minus 0.2 percent a year ago.