Record Emissions: Never before so much in such a Short Time
The European bond market is currently doing well. Never before have so many titles been released since the beginning of the year as in the still young year. As Bloomberg News reported on Wednesday, more than 200 billion euros worth of new bonds had been issued by Tuesday.
It took only twelve working days 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 banks, which borrow new money to pay off cheap loans they took out to the European Central Bank (ECB) during the corona crisis.
This has also been the case in the past few days. Landesbank Hessen-Thüringen (Helaba), Landesbank Baden-Württemberg (LBBW), Hamburger Sparkasse and Deutsche Pfandbriefbank (PBB) are stocked on the market. However, LBBW and PBB have issued Pfandbriefe Mortgage, which operates to finance mortgages.
Bausparkasse Schwäbisch Hall also put up such a Pfandbrief backed by a cover pool of mortgage loans. The €500 million title has a somewhat unusual duration of 9 years and five months. Germany’s largest building association, which belongs to DZ Bank – the central institute of Volkswagen und Raiffeisenbanken – pays a coupon interest of 2.875 percent.
This is far from beating the 10 percent inflation rate, but markets continue to assume that inflation will drop significantly in the second half of the year.
This can also be seen from the inverted yield curve: the German government’s two-year Treasury yield is currently 2.4948 percent, while the market interest rate on the ten-year federal bond is 2.101 percent lower than that.
In a normal interest rate curve, interest rates for longer maturities are higher than those for shorter maturities because a long time without money is associated with a higher risk of default, which must be rewarded accordingly.
Inverted yield curve
However, the yield curves have been inverting for some time, which is seen as a sign of recession in the financial markets. They still expect an economic slowdown, even if a soft landing in the meantime is increasingly appearing as a consensus forecast. This is supported by a good start to the year on the stock exchanges with significant price gains.
The price of the 10-year federal bond has also increased, which means yields have fallen about 0.5 percentage points since the start of the year. One could roughly speak of a shift in tectonic plates if the huge price fluctuations in the bond market were still an exception.
However, with the shift in interest rates in the past year, the bond market has become very vulnerable to volatility, even in the case of safe-haven securities such as government bonds.