The Eurozone government bonds strengthened on Wednesday as The European Central Bank (ECB) started buying corporate bonds. Also, rising political risks in Europe shifted investors towards safe-haven assets. On the contrary, crude oil prices scaled beyond the $50 mark in the Asian session, which limited the fall in bond yields.
The benchmark German 10-year bonds yield, which moves inversely to its price fell ½ basis point to 0.049 percent, French 10-year bunds yield dipped 1/2 basis point to 0.406 percent, Italian equivalents inched lower 3 basis points to 1.318 percent, Netherlands 10-year bonds yield moved down 1 basis point at 0.274 percent, Portuguese 10-year bonds yield tumbled 3 basis points to 3.098 percent, Spanish 10-year bonds yield slid 5 basis points to 1.423 percent and British 10-year bonds yield ticked down ½ basis point to 1.263 percent by 09:45 GMT.
According to Reuters, The European Central Bank started buying corporate bonds, picking up utility, insurance and telecom papers, as part of its latest effort to get companies to borrow and spend, reviving rock-bottom inflation.
Uncertainty about the outcome of the referendum and its implications for the euro zone are boosting demand for German bonds – deemed one of the safest assets in the world. In addition, Spain votes on June 26th in a re-run of an inconclusive December election. And last weekend, the anti-establishment 5-Star Movement made headway in local elections in Italy – piling pressure on Prime Minister Matteo Renzi.
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.
According to the latest poll conducted by YouGov on the weekend over the ‘Brexit’ referendum, 43 percent voted to 'remain' in the European Union, compared to 41 percent as of May 31, 42 percent voted to 'leave' the EU, compared to 41 percent on May 31. The rest remained indecisive, either declining to vote or not knowing which side to favour.
Moreover, 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.
Yesterday, the Eurozone Q1 2016 GDP (final) rose 0.6 percent q/q, higher than the market consensus of 0.5 percent q/q, from 0.6 percent in the last quarter of 2015. Spending was the main driver of GDP in the first quarter with both household and private investment leading the way. Household consumption rose 0.6 percent q/q, against market consensus of 0.5 percent q/q, from prior 0.2 percent and Government spending jumped 0.4 percent (expectations was for 0.4 percent q/q), as compared to previous 0.6 percent. Moreover, Exports climbed 0.4 percent q/q, against 0.7 percent in Q4 of 2015. Similarly, Imports rose 0.7 percent, lower than previous of 1.4 percent q/q in the last quarter of 2015.
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 jumped beyond $50 mark by hitting 2016 high as supply disruptions in Nigeria and likely declines in the U.S. crude inventories and production fuelled bullish sentiment. The International benchmark Brent futures rose 0.08 percent to $51.48 and West Texas Intermediate (WTI) jumped 0.20 percent to $50.46 by 05:15 GMT.
Meanwhile, the pan-European STOXX 600 index was down 0.41 percent and the euro-area blue-chip gauge, the STOXX 50 dipped 0.67 percent. The FTSE 100 Index rose 0.07 percent, the DAX trading 0.57 percent lower and the CAC-40 fell 0.53 percent by 09:55 GMT.
The material has been provided by InstaForex Company – www.instaforex.com