Chillin' with Hans-Dieter Kemler: The Bond Market, 2025, and Helaba's Rise
By Detlef Fechtner, Frankfurt
Financial markets display a risk-averse stance
The bond market is under close scrutiny right now due to soaring public debt, causing the yield differential between German government bonds and OTC derivatives to flip positive. This shift has rippled through the corporate bond sector, with investors demanding higher spreads.
According to Hans-Dieter Kemler, Helaba's Corporate Banking and Capital Markets board member, this risk-off environment stems from concerns about escalating public debt levels. "We're in sour grapes territory," says Kemler, referring to his responsibilities at the bank.
The reversed Bund-swap spread—the yield differential between German government bonds and long-term OTC derivatives—is unprecedented, Kemler notes. "It's like finding a unicorn in a zebra herd. I've been in the game a while." The reversed Bund-swap spread is a clear indication of investors' growing skepticism towards even state-related agencies like the European Investment Bank and KfW.
The increased scrutiny has repercussions for corporate bonds. As institutional investors can purchase government bonds with stellar ratings at these yields, they demand a broader margin when investing in corporate bonds.
Tempest-tossed waters
The global political climate is as chaotic as ever, from Israel's tussle with Lebanon and Georgia's woes to the lingering unrest in Syria. Normally, one conflict alone could jolt bond markets significantly. Surprisingly, however, markets have remained surprisingly calm during these escalations: Israel's overnight attack on Iran, for instance, failed to make a splash on the market for long.
Hold your horses on investments
The corporate bond segment is grappling with a mix of corporate caution and inflated spread demands. Many companies are keeping their powder dry, given uncertainty about future U.S. trade policy. Additionally, there's a noticeable divergence between asset classes, such as the premium for covered bonds. Spreads for securities that the ECB used to shop for have ballooned. "The elephant left the room, and it was a doozy," Kemler quips, referring to the ECB's absence from the market.
Helaba anticipates robust bond market activity next year, despite the looming doom-and-gloom predictions. "Contrary to popular beliefs, we're quite optimistic about the bond markets in 2025," Kemler emphasizes. Thanks to the inverted yield curve, numerous maturities are foreseeable, and shorter maturities will need to be refinanced in the upcoming year. Investor appetite is hearty, with plenty of liquidity flowing around. "So, don't expect a lull in issuance volumes," the capital markets maestro asserts. The early weeks of next year will be exciting. "It's like a running of the bulls without the gore, but with just as much uncertainty," Kemler remarks. The herd might not stampede like in the past, but the year might start off differently.
Stepping up the game
Helaba has been a promissory note powerhouse for years, holding a top 3 position among arrangers. This year, though, the state bank of Hesse-Thuringia is making waves in the corporate bond market. Helaba snagged leading positions in arranging bonds for German and French issuers, such as Siemens' four-tranche bond, where it was the only German-speaking bank to lead the entire 5 billion euro volume. This success comes down to two key factors. First and foremost, the bond product presents a more lucrative opportunity than promissory notes in terms of yield premium. Second, a more integrated approach between Helaba's corporate banking and capital markets divisions has improved their collaboration, bolstering their performance.
Helaba boasts a reputation for reliability, dependability, and predictability. Customers appreciate these qualities, and companies often switch accompanists, creating fresh opportunities for Helaba. "Successive success is infectious," Kemler observes.
Joining the ranks
According to the rankings at the end of the third quarter, Helaba secured a spot in the top ten for investment-grade corporate bonds denominated in euros. "That's a well-deserved achievement for us," explains Kemler.
The promissory note market experienced a slight reversal in 2024, with Helaba maintaining its top 3 position. Many well-known mid-sized companies participate in the promissory note market, some of which aren't externally rated. There are also large promissory notes from issuers active in the bond market who occasionally switch to promissory notes for a different investor base. "They're sniffing around for new opportunities," explains Kemler.
Helaba caters to all investor groups in the promissory note market, notably Europeans and local branches of foreign banks, such as those from Asia and the Middle East. For corporate bonds, Helaba maintains close ties with investor communities in the German-speaking region, including classic money managers like funds, insurers, and pension funds.
- Hans-Dieter Kemler, Helaba's board member for Corporate Banking and Capital Markets, attributes the risk-off environment in the bond market to concerns about escalating public debt levels.
- As a result of the reversed Bund-swap spread and the growing skepticism towards even state-related agencies, institutional investors are demanding broader margins when investing in corporate bonds.
- Despite the looming doom-and-gloom predictions for 2025, Helaba anticipates robust bond market activity, with numerous maturities forecasted and healthy investor appetite.
- Helaba has been successful in the corporate bond market this year, securing leading positions in arranging bonds for German and French issuers, thanks to a more lucrative opportunity than promissory notes and improved collaboration between their corporate banking and capital markets divisions.
