The European bonds rallied on Friday as investors poured into safe-haven instruments after reading this week's weaker-than-expected data and Britain's upcoming EU referendum which lowered the chances of an interest rate rise in the United States next month. Moreover, traders will remain cautious ahead of Federal Reserve Chair Janet Yellen's speech that is likely to clear the air on Fed's stance on interest rate hike. The benchmark German 10-year bonds yield, which moves inversely to its price fell 2bps to 0.125 pct, French 10-year bunds yield dipped 2bps to 0.462 pct, Italian equivalents inched down 3bps to 1.347 pct, Netherlands 10-year bonds yield tumbled 2bps at 0.335 pct, Spanish 10-year bonds yield ticked lower 2bps to 1.482 pct and British 10-year bonds yield fell 1/2 bps to 1.410 pct by 0900 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, crude oil prices fell more than 1 percent to below $50 mark after investors booked profit, as they considered whether higher prices could unlock more output in an already oversupplied market.
Yesterday, crude oil prices crossed $50 mark for first time in seven months after the U.S. government reported a larger-than-expected drop in crude inventories. According to the US DOE, crude inventories decreased 4.2 million barrels, as compared to a build of +1.3 million barrels seen prior for the week ending 20 May. This came alongside an increase seen in gasoline inventories of +2.0 million barrels, from a draw of -2.5 million barrels seen prior and a decrease in distillate inventories of -1.3 million barrels, against a draw of -3.2 million barrels. The International benchmark Brent futures fell 1.35 pct to $48.92 and West Texas Intermediate (WTI) dipped 0.63 pct to $49.17 by 0830 GMT.
In addition, according to the latest EU referendum poll by BMG 44 percent favoured to 'remain', 45 percent voted for leave and remaining were inconclusive. Earlier, the U.K poll by YouGov shows the public evenly split on Brexit at 41-41 percent. This survey, conducted on 23-24 May, represents a net 4 percent swing against European Union membership since the organisation's poll last week. On Monday, the U.K public opinion poll released by Opinium over the weekend showed 44 percent of the voters favoured remaining in the EU and 40 percent supported leaving the European Union. However, this is similar to most recent surveys showing a modest balance against Brexit. Moreover, the UK Chancellor of the Exchequer Osborne warned over the last weekend that Brexit would cause a year-long recession. UK Treasury in its recent report on Brexit concluded that Brexit could cause the pound index to fall 12-15 percent and push up jobless rate by 520k-820k. Added this catastrophic event will lower real wages by 2.8-4.0 percent and could raise inflation by 2.3-2.7 percentage point. Budget deficit could increase 24-39 billion and a Brexit vote would result in a marked deterioration in the economic security and prosperity, they added further.
The markets will now focus on next week’s May consumer inflation on Monday (1200 GMT), April Retails sale (0600 GMT), May unemployment change (0755 GMT), Euro zone May CPI (0900 GMT) on Tuesday, May Manufacturing PMI (0755 GMT) on Wednesday and European Central Bank ECB) June interest rate decision on Thursday (1145 GMT).
Meanwhile, the pan-European STOXX 600 index was down 0.11 pct and the euro-area blue-chip gauge, the STOXX 50 climbed 0.25 pct. The FTSE 100 Index rose 0.17 pct, the DAX trading 0.09 pct higher and the CAC-40 ticked up 0.06 pct by 0935 GMT.
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