Government bond markets saw significant gains in November as expectations for further rate hikes by central banks diminished. Inflation has recently slowed, leading central banks to adopt a wait-and-see approach.

Inflation in the Eurozone in November was at 2.4%. Specifically, the reduction in energy prices contributed to tempering inflation rates, while food and service prices continue to face upward pressure. Although the US economy appears surprisingly strong, Europe is in recession. Some optimists believe that rates in Europe could be the first to decrease next year. However, it’s important to remember that the US is traditionally seen as a pioneer and reference market for interest rate trends. At the same time, the Eurozone must be careful not to cut reference interest rates too quickly to avoid further weakening the euro, which could lead to imported inflation, especially in the energy sector.

For bond investors, the described change has the positive effect of improving the yields of existing bond investments. After the crisis year of 2022, a return to positive yields, albeit at a modest level, is expected for 2023. The REX index, which tracks the performance of a portfolio of German government bonds of various maturities, shows an increase of 1.6 percent after eleven months. However, this demonstrates that it was not possible to preserve the real value of assets with German government bonds in 2023. The outlook for 2024 is not very optimistic. Ten-year German government bonds currently offer a yield of about 2.4%. Whether the inflation rate will fall below this value next year is uncertain, according to the European Central Bank.

In other respects, too, German government bonds seem unattractive. Il rapporto prezzo/utili (P/E), ottenuto dividendo 100 per l’attuale rendimento, è di circa 41. In comparison, the price/earnings (P/E) ratio of the DAX index is much lower, at around 11. The dividend yield of DAX shares, at 3.5%, significantly exceeds the yield of ten-year German government bonds. Therefore, the main beneficiaries of a possible change in interest rates are more likely to be found in the stock market than in the bond market. It is also foreseeable that in the coming months there will be a high supply of new government bonds, as public debt is increasing everywhere, including in Germany, while the supply of available and new shares tends to decrease. This is due not least to the numerous share buybacks by listed companies, whose number has been declining for years due to acquisitions and delistings. Simultaneously, the number of new issues has been relatively low in recent years.