The European government bonds plunged on Thursday as investors expects that the European Central Bank will likely raise growth and inflation forecasts in its policy meeting decision today. Also, firm crude oil prices shifted investors from safe-haven buying.
The benchmark German 10-year bonds yield, which moves inversely to its price rose 2 basis points to 0.154 percent, French 10-year bunds yield jumped 2-1/2 basis points to 0.501 percent, Irish 10-year bonds yield moved up more than ½ basis point to 0.827 percent, Italian equivalents inched higher 3 basis points to 1.420 percent, Netherlands 10-year bonds yield climbed 2 basis points to 0.366 percent, Portuguese 10-year bonds yield bounce 3 basis point to 3.156 percent, Spanish 10-year bonds yield ticked higher 3-1/2 basis point to 1.533 percent and British 10-year bonds yield rose 2 basis points to 1.394 percent by 09:20 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 moved a solid leg higher towards $50 as investors and traders wait for the outcome of the Organization of the Petroleum Exporting Countries meeting later today, where discussion on a collective output ceiling could be revived. The International benchmark Brent futures rose 0.30 percent to $49.77 and West Texas Intermediate (WTI) jumped 0.12 percent to $49.07 by 08:40 GMT.
The European Central Bank is expected to stay on hold at its policy meeting, scheduled on Thursday since certain comprehensive measures that were ruled out in March, are still waiting to be implemented. Against such a backdrop, the Central Bank is most unlikely to act to drop rates any further. Further, the inclusion of corporate bonds to the asset purchase program and the LTROs are likely to occur next month, while the increase in the quantum of the QE program took effect last month, DBS reported. Further, CPI-led inflation in April and May unemployment rate will probably reinforce that inflation will likely remain on the downside with household sector befits recovering from a sharp turn in the jobs market.
In the meantime, Eurozone’s apex bank predicted that May inflation is likely to fall marginally lower by -0.1 percent on year, compared to -0.2 percent in April, with core inflation modestly moving up. April unemployment rate is seen at 10.2 percent, a shade below 10.3 percent month before.
“Brexit risks will also warrant attention after the BoE outlined a cautious approach towards the impending event risk,” DBS said in a research report.
On Tuesday, the Euro zone preliminary May HICP inflation came out at -0.1 percent y/y, matching consensus expectations, and up slightly from -0.2 percent the previous month. The improvement was driven by increases in food, alcohol, tobacco and non-energy industrial goods. The ex-food-and-energy rate picked up to 0.8 percent y/y from 0.7 percent. Both rates are just 2-month highs.
Meanwhile, the pan-European STOXX 600 index was up 0.24 percent and the euro-area blue-chip gauge, the STOXX 50 jumped 0.43 percent. The FTSE 100 Index rose 0.34 percent, the DAX trading 0.16 percent higher and the CAC-40 ticked up 0.16 pct by 09:20 GMT.
The material has been provided by InstaForex Company – www.instaforex.com