Bond Movie

Bond markets

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What's going on?

Despite the European Central Bank’s (ECB’s) interest rate cut this month, the eurozone economy remains weak – and that’s pushing more investors into bonds’ unrewarding embrace.

What does this mean?

Bonds are a safer investment than stocks during economic slowdowns. Companies pay bondholders before shareholders, and large governments almost never default on their bonds – making them effectively risk-free investments. Risk is something European investors may be anxious to avoid: a German business survey on Tuesday compounded other data this week suggesting that the region’s biggest economy is indeed in recession (tweet this).

With the ECB itself set to resume buying bonds later this year, German government bond prices in particular may shortly hit fresh record highs (and their yields record lows). Over in the US, meanwhile, investors are increasingly opting for “value” stocks whose prices should be less likely to fall if the global economy weakens any further.

Why should I care?

For markets: Germans keep calm and geradeaus gehen.

The gloomy business and economic environment in Germany hasn’t stopped investors looking for new opportunities there. Several big ones backed software company TeamViewer’s $6 billion recent initial public offering – Europe’s largest this year. The workplace productivity firm rivals newly public American companies Slack and Zoom Video Communications – and its current investors will hope to capitalize on others’ rising appetite for shares in such companies.

For England, James?: The world is quite enough.

Aston Martin – James Bond’s favorite luxury carmaker – could’ve been forgiven for thinking investors would jump at the opportunity to buy up its $150 million bond offering this week. But investors are less indiscriminate than playboy spies. After it warned of lower future profit in July and said it’d use existing debt to repay the bond rather than cash, investors demanded a 12% interest rate from Aston’s bonds. For context, UK government bond returns are below 1%; 12% is closer to what you might pay on a credit card.

Originally posted as part of the Finimize daily email.

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