Rheinmetall’s Bond Issuance Attracts Overwhelming Demand as Stock Remains Under Pressure

Defence group's €73bn backlog fuels bond demand, but equity caution persists as Arctic contracts remain unfunded and stock falls 38% from February peak.

The gap between Rheinmetall’s operational strength and its share price continues to widen. While the defence group markets itself aggressively for future Arctic and urban defence contracts, its stock has shed nearly a quarter of its value since the start of the year.

On Thursday, shares changed hands at €1,235, a 38% plunge from the 52-week high of €1,995 recorded in February. The relative strength index sits at 90.3, signalling technically overbought conditions after a recent recovery from the early-May low of around €1,112.

That sharp fall from grace stands in stark contrast to the reception on the debt side. For the first time in 16 years, Rheinmetall tapped the corporate bond market, issuing a five-year unsecured note with a fixed coupon. The order book swelled to over €3.9 billion, allowing the group to price just €500 million in bonds at a spread of 55 basis points over mid-swaps — well below the initially indicated 100 basis points. Moody’s assigned a Baa1 rating, firmly in investment-grade territory.

The enthusiasm among fixed-income investors reflects the strength of Rheinmetall’s €73 billion order backlog, a figure that includes pending contracts for ammunition, air defence systems, and naval equipment. The challenge now is converting that pipeline into recognised revenue — a test that will come into sharper focus when the half-year report is published in August.

Meanwhile, the equity camp is showing signs of caution. FMR LLC, better known as Fidelity, trimmed its stake on 18 May from 3.09% to 2.88%, slipping below the 3% disclosure threshold. The move coincides with a period of technical weakness for the stock, and although large asset managers routinely rebalance, a reduction during a downtrend tends to draw more scrutiny than it would in a rally.

Rheinmetall is not standing still. At the CANSEC trade fair in Ottawa this week, its Canadian subsidiary showcased the Mission Master SP2 and the Mission Master XT2 Arctic Edition — autonomous vehicles designed for multi-domain operations and extreme northern conditions. The backdrop is a Canadian government pledge of more than C$40 billion for Arctic defence and infrastructure, of which over C$35 billion represents federal investment. Yet the two specific programmes Rheinmetall is targeting — Indirect Fires Modernisation and Domestic Arctic Mobility Enhancement — remain at the “options analysis” stage and are flagged as “unfunded” or “underfunded”, with estimated costs of C$5 billion and C$200 million respectively. No contracts, no order value.

Closer to home, the group is also developing a drone defence shield for cities in partnership with Deutsche Telekom, combining sensor and laser technology with mobile-phone network capabilities. The Federal Criminal Police Office registered more than 1,000 suspicious drone flights in 2025 alone, underscoring the perceived threat. Additionally, production of the Skyranger air-defence system is being relocated to Germany.

Barclays argues the equity market has overreacted. The British bank maintains an “overweight” rating, pointing to an intact European defence cycle and what it sees as excessively pessimistic sentiment following a weak first quarter. Chief Executive Armin Papperger himself expects around €20 billion in new nominations during the second quarter, including a Lynx programme for Romania and the F126 frigate contract.

For the full year, management is guiding revenue between €14.0 billion and €14.5 billion, with an operating margin of approximately 19%. In the first quarter, the group generated €1.938 billion in sales and an operating profit of €224 million. The August half-year report will provide the first clear evidence on whether deliveries in ammunition, air defence, and the integration of Naval Systems are tracking as planned — and whether the annual forecast holds firm.