European Bonds Slump on Tracking Firm Crude

European Bonds Slump on Tracking Firm Crude

12 May 2016, 12:52
Roberto Jacobs

European Bonds Slump on Tracking Firm Crude

The European bonds slumped on Thursday as investors cooled on safe-haven assets amid gains in riskier assets including stocks and oil. Also, investors await Bank of England (BoE) interest decision and Governor Mark Carney is expected to tread carefully in its speech on whether to leave the European Union, when he sets out the central bank's latest forecasts against the most uncertain economic backdrop in years.

The benchmark German 10-year bonds yield, which is inversely proportional to bond price rose 2bps to 0.151 pct, French 10-year bunds yield climbed 4bps to 0.510 pct, Italian equivalents jumped 5bps to 1.509 pct, Spanish 10-year bonds yield inched higher 4bps to 1.631 pct and Portuguese 10-year bonds yield rose 3bps to 3.275 pct, Netherlands 10-year bonds yield moved up 3bps to 0.373 pct, British 10-year bonds yield rose 3bps to 1.414 pct by 0940 GMT.

The European bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Today, the crude oil prices climbed after International Energy Agency said in its report that the global supply glut to shrink this year. They mentioned that non-OPEC output falling 800k barrel per day (bpd) in 2016, from previous forecast of 710k bpd as unplanned outages start to bite and global crude oil stocks to rise by just 200k bpd in the second half of 2016, as compared to 1.3 million bpd in first half. Nigeria, Libya and Venezuela have seen crude output fall 450k bpd from a year ago and further rally in oil prices to be tempered by brimming crude and product stocks, until more levels of inventory are reached, they added in a note. According to the US DOE, crude inventories decreased 3.4 million barrels, as compared to previous build of 2.8 million barrels for the week ending 6 May. This came alongside decreases seen in gasoline inventories of 1.2 million barrels, from prior 0.5 million barrels, also supported oil prices. The International benchmark Brent futures rose 0.84 pct to $47.99 and West Texas Intermediate (WTI) jumped 0.78 pct to $ 46.59 by 0900 GMT.

On the other hand, investors did not react to the weak March industrial production data, which decline 0.8 pct, consensus was for zero change, from prior down 0.8 pct (revised to -1.2 pct). Every sector in energy saw a drop in output in March and that was likely to be weather related. The fall in durable and non-durable goods is no surprise given the recent drop in retail sales.

Meanwhile, the pan-European STOXX 600 index was up 0.17 pct and the euro-area blue-chip gauge, the STOXX 50 climbed 0.53 pct. The FTSE 100 Index down 0.07 pct, the DAX trading 0.41 pct higher and the CAC-40 jump 0.47 pct by 0940 GMT.

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