The European bond market is currently doing well.
Never before have so many titles been issued since the beginning of the year as in the still young year.
As the Bloomberg news agency reported on Wednesday, new bonds worth more than 200 billion euros were issued by Tuesday.
Only twelve business days were necessary to break this mark.
This required 16 working days in 2022 and 2020.
It took 17 working days in 2021 and 20 in 2019.
Almost half of the emissions come from the banks, which are borrowing new funds to repay the cheap loans they took out to the European Central Bank (ECB) during the Corona crisis.
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That was also the case in the past few days.
The Landesbank Hessen-Thüringen (Helaba), the Landesbank Baden-Württemberg (LBBW), the Hamburger Sparkasse and the Deutsche Pfandbriefbank (PBB) have stocked up on the market.
However, LBBW and PBB issued mortgage Pfandbriefe, which serve to finance real estate loans.
Bausparkasse Schwäbisch Hall has also placed such a Pfandbrief backed by a cover pool from mortgage loans.
The title with a volume of 500 million euros has the somewhat unusual term of 9 years and five months.
Germany's largest building society, which belongs to DZ Bank – the central institution of the Volks- und Raiffeisenbanken – pays an interest coupon of 2.875 percent.
This is far from beating the inflation rate of 10 percent, but the markets continue to assume that inflation will fall significantly in the second half of the year.
This can also be seen from the inverted yield curve: two-year Treasury bills from the German government currently have a yield of 2.4948 percent, while the market interest rate for ten-year federal bonds is 2.101 percent below that.
In a normal interest rate curve, the interest rates for longer maturities are higher than those for shorter maturities because the longer time without money is associated with a higher risk of default, which must be rewarded accordingly.
Inverse yield curve
However, the yield curves have been inverted for some time, which is seen as a recession signal on the financial markets.
They continue to expect an economic downturn, even if meanwhile the soft landing is increasingly emerging as a consensus expectation.
This is supported by the good start to the year on the stock exchanges with significant price gains.
The price of the ten-year federal bond has also risen, which means that the yield has fallen by almost 0.5 percentage points since the beginning of the year.
One could almost speak of a tectonic plate shift if the enormous price fluctuations on the bond market were still an exception.
However, with the turnaround in interest rates last year, the bond market has become extremely susceptible to fluctuations, even in the case of securities as safe as federal bonds.
Nevertheless, investors should be aware of the inverted yield curve.
It suggests that long-term interest rates are likely to fall again as recession looms and inflation eases.
Then an interest coupon of 2.875 percent for a high-quality paper like the Pfandbrief from Bausparkasse Schwäbisch Hall would be worth considering.