A Chit-Chat with Hans-Dieter Kemler: Bracing for the Bond Market Scene in 2025 and Helaba's Expanded Role
By Detlef Fechtner, Frankfurt
"A cautious or defensive investment approach prevails"
The current bond market scenario has investors squinting warily at towering public debt, causing the yield differential between German government bonds and long-term OTC derivatives to turn positive, lately. This change has a domino effect on corporate bonds, with buyers requiring a swollen spread.
In an interview with the Börsen-Zeitung, Hans-Dieter Kemler, Helaba's board member responsible for corporate banking and capital markets, recognizes the market as being mired in worry about soaring public debt. "We're currently in a risk-off environment," he remarks.
The gap yawning between German government bonds and long-term OTC derivatives (a.k.a the Bund-swap spread) has recently taken on a positive shade, recalls Kemler, who's been immersed in the bond market for quite some time. This reversal underscores investors' heightened scrutiny of excessive government debt, even when it pertains to securities issued by state entities like the European Investment Bank or KfW.
Such skepticism seeps into corporate bonds, with institutional investors putting forth a demand for a greater spread for corporate bonds if they can secure government bonds with stellar ratings at such yields.
Flare-ups Everywhere
The geopolitical landscape today is a patchwork of simmering tensions and hotspots. Last year, the situation had already been festering due to Russia's hostilities against Ukraine. "Now we witness escalations from Israel to Lebanon and Georgia to the ongoing predicament in Syria," Kemler elucidates.
Interestingly, one of these conflicts alone could cause considerable turmoil in the bond markets. But remarkably, the markets have remained strikingly composed: For instance, Israel's overnight assault on Iran was merely a brief blip on the market.
Cautious Investments
The spread that investors desire for corporate bonds exceeds what some companies are willing to offer in the current climate. Furthermore, businesses are hoarding cash, as uncertainty around future US trade policy and other factors keeps them on tenterhooks. Additionally, dislocations between asset classes can be spotted. This is apparent with the premium that market participants must fork over for covered bonds. For securities previously bought by the ECB, the spread has grown. "After all, the elephant in the room is no longer there, devouring half of the emission," Kemler comments. This observation applies to corporate bonds, among other things.
Bond Market Volumes: Bring It On!
Despite concerns over bond market volumes in the coming year, Helaba remains hopeful about the bond market's prospects in 2025. "We're confident about the bond markets in 2025," stresses Kemler. Many maturities are foreseeable due to the inverted yield curve, with many shorter maturities needing to be refinanced next year. Investor appetite is high because there's plenty of liquidity in the market. "There's no reason to anticipate a dip in issuance volume," asserts the capital markets expert. The initial weeks are likely to be intriguing. "In past years, everyone scrambled to go through the same door at the identical time," points out Kemler. This rush sometimes led to unusually high issuance volumes in the past, but this time it might be different.
A Rising Star in Corporate Bonds
Helaba has earned fame as an emminent player in the promissory note market for decades. This year, however, the bank has taken on a more substantial role in corporate bonds. Helaba has led corporate bond arranging for German and French issuers such as Siemens' four-tranche bond. "We've achieved a significant breakthrough," emphasizes Kemler. There are two primary reasons for this growth. First, the bond product offers a more lucrative yield premium than the promissory note. Second, "we've tightened our corporate banking and capital markets operations," enhancing their synergy.
Helaba's clients extol the house's reliability and predictability, according to Kemler. "We also benefit from rotation, as companies interface with various accompanying banks periodically." And if a bank can demonstrate it can rally the essential investors, word spreads. "Success breeds success."
Top Ten Status Achieved
By the end of the third quarter, Helaba found itself nestled in the top ten for investment-grade corporate bonds denominated in euros. "That's a commendable outcome for us," explains the board member.
The promissory note market has experienced slight regression in 2024. "We managed to protect our top 3 position," says Kemler. Many mid-sized companies are active on the promissory note market, not all of which boast an external rating. Large promissory notes from issuers who are also bond players occasionally emerge to tap into other investors. "They occasionally migrate to promissory notes to reach a wider spectrum of investors," Kemler adds.
Helaba services all investor groups that purchase the product in the promissory note market. These primarily consist of European buyers, but also include local branches of foreign banks, such as those originating from Asia or the Middle East. For corporate bonds, Helaba maintains close relations with investors in the German-speaking region, encompassing typical institutional investors such as funds, insurers, and pension funds.
- In the risk-off environment, investors are requiring a swollen spread for corporate bonds, as they can secure government bonds with stellar ratings at such yields despite the recent positive Bund-swap spread.
- Helaba, known for its eminence in the promissory note market, has taken on a more substantial role in corporate bonds, having led arranging for German and French issuers, and aims to remain hopeful about the bond market's prospects in 2025, given the foreseeable maturities and high investor appetite.
