Bonds: Higher yields thanks to new debt?

Analysts currently consider it unlikely that the US Federal Reserve will set the direction for long-term yields with its interest rate cut expected in 2026. ABO Energy's bond once again recorded a sharp drop in price.

January 16, 2026. FRANKFURT (Deutsche Börse). The yield on ten-year German government bonds was virtually unchanged on Friday afternoon at 2.83 percent compared to the previous week. The situation is similar overseas, where ten-year US Treasuries are currently yielding 4.17 percent. This week, 30-year US government bonds briefly fell below the 4.80 percent mark and thus also below their 200-day moving average. Ilona Korsch of Hauck Aufhäuser Lampe describes this level as an “important technical area.”

The same applies in Germany to the 3.40 percent mark, to which the yield on 30-year German government bonds has fallen back in recent days. An interim high from last summer is currently serving as technical support here. “If trading continues at this level, it could continue towards 3.20 percent,” says Korsch, pointing to the possible risk of further short-term declines in yields. LBBW analysts predict a countervailing trend, at least in the medium term. Strategists expect higher yield levels by the end of the year.

US yields expected to rise further

This also applies to the US market. The yield target for ten-year US Treasuries is also well above current levels at 4.50 percent. This is despite the fact that LBBW analysts expect the US Federal Reserve, under the chairmanship of Jerome Powell's successor, to decide on its next interest rate cut in June. “The risk of a renewed decline in long-term US Treasury prices remains considerable despite the Fed's easing,” explains Elmar Völker. In his view, the downward trend in yields is still intact. However, if the low inflation figures turn out to be only a “blip,” this trend could be jeopardized.

“Trump's repeated attacks on the Fed are increasing the inflation risk premium,” the analyst warns against this backdrop. In addition, the US tax law that has come into force is further fueling concerns about spiraling government debt. The steepness of the yield curve, which has risen to a three-year high, gained “fresh momentum” at the end of 2025. The spread between ten-year and two-year bond yields is therefore at its highest level since January 2022, at around 70 basis points.

The yield curve could become even steeper

Arif Husain of T. Rowe Price also expects “upward pressure on yields” as almost all governments and many companies in the AI sector take on new debt. In his view, the yield spread between 10-year US government bonds and money market interest rates could rise from the current level of around 30 basis points to between 150 and 200 basis points. He therefore advises investors: “Don't confuse the development of short-term interest rates with the direction of long-term yields.”

This is a thesis that experienced fund manager Dr. Jens Ehrhardt also supports: “In this cycle, it is striking that central bank interest rate cuts do not automatically mean falling long-term interest rates. If government debt remains high, term premiums rise and issuance volumes are large, the 10-year yield can remain high despite falling key interest rates, as was recently observed.”

Heidelberg Materials gets fresh money

In the corporate bond segment, Gregor Daniel of Walter Ludwig Wertpapierhandelsbank reports purchases of bonds from BMW (XS3075490188), Mercedes-Benz (DE000A3LH6U5) and the Asian Development Bank (XS3074428841). He also sees good demand for a newly issued bond from Heidelberg Materials (XS3270897575). On the other hand, the Porsche bond (XS2643320018), which matures in 2027, is being sold. The carmaker reported weak sales figures again this week.

The Venezuelan bond in US dollars (USP17625AE71), which had recently risen significantly from a low level, has fallen back from its high of 43 percent to 39 percent. “After the upward movement in the first week of trading, calm has returned here,” explains Daniel, referring to the decline in sales.

Another “profit warning” from ABO Energy

Meanwhile, Raffaele Antacido from ICF Bank reports another sharp drop in the price of the ABO Energy GmbH & Co. KGaA bond (DE000A3829F5), which matures in 2029. “The bond fell from 50 percent to just 20 percent within two days.” In mid-November, the bond was still trading at prices above 100 percent. After the management board had already warned in November of a shortfall of €95 million in 2025, the loss forecast has now been significantly increased to around €170 million. This did not go down well with investors and caused a flight from the company's bonds and shares.