German Bund Yields Hover Around Record Low Levels, Likely to Test Zero Soon

German Bund Yields Hover Around Record Low Levels, Likely to Test Zero Soon

9 June 2016, 12:12
Roberto Jacobs
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German Bund Yields Hover Around Record Low Levels, Likely to Test Zero Soon

The German 10-year bund yields continue to hover around record low levels on Thursday, after testing its 2015 low of 0.05 percent on Tuesday, are likely to test zero soon as the 10-year US Treasury yield finally breaks through 1.70 percent mark and fell to 1.67 percent for the first time since February in Asian session today, along with lower equity markets.

Concerns about the Brexit vote on 23rd June referendum and uncertainty over Fed outcome shifted investors towards safe-haven buying.

Also, investors preferred to buy safe-haven assets after China’s weak CPI data portrayed that the world’s second-largest economy continues to battle weak demand. On the contrary, crude oil prices scaled beyond the $51 mark in the Asian session, which limited the fall in bund yields.

The yield on the benchmark 10-year bonds, which moves inversely to its price fell near to 2 basis points to 0.040 percent by 08:50 GMT.

The Chinese consumer price index (CPI) weakened unexpectedly in May, while factory gate prices fell for the 51st consecutive month, a sign the world’s second-largest economy continues to battle weak demand. The consumer prices rose by 2.0 percent y/y in May, less than estimates for 2.2 percent y/y. Moreover, PPI fell by 2.8 percent y/y in May, less than estimates for -3.2 percent y/y and purchasing prices were down 3.8 percent y/y in May, as compared to -4.4 percent y/y in April.

Moreover, ECB President Draghi said that a committed central bank can always fulfil its mandate, but if other policies are not aligned with monetary policy, inflation may return to its objective at a slower pace This means that the ECB is clearly once again calling for governmental action on supportive fiscal policies and pro-growth structural reforms, but this will tend to fall on deaf ears in European capitals.

The recent polls showed the outcome of the referendum is too close to call, raising the possibility that Britain might leave the EU after 43 years of membership in the bloc. A new UK-EU poll by ORB for the Telegraph, among people saying they will definitely vote in the referendum on the 23rd, 48 percent said they will vote to remain and 47 percent to leave the union. Yesterday, the WTO director general Azevedo said that the UK business competitiveness will be badly hit if the country votes to leave the EU. He adds that although trade will continue, it could be on worse/costlier terms.

In addition, the World Bank lowered its 2016 global growth forecast to 2.4 percent from the earlier forecast of 2.9 percent in January due to stubbornly low commodity prices, sluggish demand in advanced economies, weak trade and diminishing capital flows.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices jumped beyond $51 mark as strong China imports aided positive trading sentiment amid the ongoing supply outages in Nigeria and falling U.S. crude oil inventories. The International benchmark Brent futures fell 0.27 percent to $52.37 and West Texas Intermediate (WTI) jumped 0.08 percent to $51.27 by 07:55 GMT.

Looking ahead, Bank of Japan Governor Haruhiko Kuroda will make a decision on stimulus on June 16 and the Federal Open Market Committee (FOMC) gathering scheduled for June 14-15. The U.K. decision on whether to remain in the European Union on June 23 is also weighing on investors’ minds.

Meanwhile, the German stock index DAX Index down 1.14 percent at 10,101 by 9:00 GMT.

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