Bonds: “Higher supply and lower demand”

Ahead of next week's Fed meeting, yields on government bonds in the US and Europe are rising slightly. Analysts see this as a sustained trend, driven in part by ever-increasing debt levels.

5 December 2025. FRANKFURT (Deutsche Börse). The US Federal Reserve meeting scheduled for next Wednesday is casting its shadow over the bond markets. Expectations are clear this time around. “Market participants are firmly expecting an interest rate cut in the US,” explains Ralf Umlauf of Helaba. Fed Funds Futures are pricing in such a rate move with a probability of around 90 percent.

Robert Greil of Merck Finck sees further potential for cuts despite the possibility of a temporary rise in inflation. Among other things, the chief strategist points to the expected appointment of Kevin Hassett as the future Fed chairman. This would give Donald Trump even greater influence over the US Federal Reserve than before. “Since Trump is aiming for further key interest rate cuts towards 2.5 percent rather than the approximately three percent expected by the market next year, this could result in slightly more than the expected three key interest rate cuts.”

Rising supply of new bonds

The yield on ten-year US Treasuries rose from 4.00 percent to 4.11 percent over the week. Strategists at BlackRock warn that high levels of new borrowing, including to finance AI investments, could put further pressure on bond markets in the future. An increasing supply of new bonds tends to lead to falling prices and thus rising yields. In line with this, US government debt has more than doubled since 2018.

The Bund Future is under pressure

There was relatively little new momentum on the German bond market this week. Nevertheless, the yield on ten-year German government bonds climbed to 2.78 percent (previous week: 2.67 percent), its highest level since the end of September. The benchmark Euro Bund Future (DE0009652644) fell to a low of 128.05 points and is currently trading at 128.35 points. Helaba experts see the next support level at the contract low of 127.61 points. Resistance remains unchanged in the range of the moving averages (128.76 to 129.00 points) and at the last interim high of 129.21 points.

Adjustment process may not yet be complete

Since the beginning of the year, the yield on ten-year German government bonds has risen by 37 basis points. According to Helaba, the European bond market is under latent pressure. Even the temporary uncertainty on the stock markets has not led to sustainably higher prices and lower yields. “This is all the more remarkable given that interest rate expectations with regard to the ECB have hardly changed for weeks.”

After a “long phase of exceptionally low real yields,” strategists are observing an “adjustment process that has not been interrupted by the series of interest rate cuts by the ECB and may not yet be complete.” They suspect that this development is being driven by a combination of the expected higher supply of government bonds and the decline in the Eurosystem's bond portfolio since 2022. “As a result, higher bond supply is meeting lower demand.”

Selected corporate bonds are being purchased

Gregor Daniel from Walter Ludwig Wertpapierhandelsbank reports manageable sales for the corporate bond segment. Among the favorites are bonds from Deutsche Post (XS3084418907), the Republic of France (FR0010371401), and RWE (XS2584685031).

Raffaele Antacido from ICF Bank also sees a “generally wait-and-see attitude” among investors. However, there are exceptions. He reports “conspicuously high demand” for the Munich Re (XS3156305925) bond maturing in 2049 with a yield of 4.0 percent. “One reason for the demand could be that the reinsurer has already achieved its profit targets for the year in the first three quarters and is benefiting from two quarters with very low major losses.”

There has also been increased buying of the recently issued bond from the Gelsenkirchen-Schalke 04 soccer club (DE000A460AT6), which had initially come under some pressure and was trading below par. “Now the bond is seeing higher demand again and is trading at 101 percent.” With a term of five years, it offers an annual coupon of 6.5 percent.