The German bunds rallied Monday on expectations that the ECB may be forced to ramp up its liquidity injections if the post-Brexit blow back accelerates. Also, weak economic growth outlook from the IMF shifted investor’s interest towards safe-haven buying.
The yield on the benchmark 10-year bond fell more than 1 basis point to -0.197 percent, yield on super-long 30-year bonds tumbled more than 2 basis points to 0.338 percent and the yield on short-term 2-year note also dipped 2 basis points to -0.703 percent by 09:00 GMT.
Being the safest asset in the euro area, German bunds are mostly preferred by the risk-averse investors after the Brexit result last month. The Britain's decision to leave the EU forced the European Central Bank for injecting more stimuli.
Moreover, the IMF in its latest report downgraded its forecast for the German economy to 1.7 percent in 2016, dipping to 1.5 percent next year. Also, the IMF trimmed its Eurozone 2017 GDP growth forecast to 1.4 percent, from earlier forecast of 1.6 percent. The IMF mentioned in its report that downside risks to the region have grown due in part to the UK vote and urges the ECB to further expand asset buying if inflation does not improve.
In addition, the German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices eased as an increase in US drilling activity and a strong dollar reversed gains from last week's better-than-forecast US jobs report. The International benchmark Brent futures fell 0.98 percent to $46.29 and West Texas Intermediate (WTI) slid 1.59 percent to $44.69 by 09:10 GMT.
Lastly, the Bank of England is also expected to ease interest rates in its monetary policy meeting scheduled to be held on July 14, in an attempt to ease the growing anxiety over the possible breakdown after the Brexit outcome.
The UK as it could herald the first BoE Bank Rate cut since Feb 2009. There is a low probability, but non-negligible risk, that the central bank also resumes its programme of asset purchases, financed through reserves issuance, although this is more likely in August. So it is likely that we see a 25 basis points rate cut on Thursday that takes the Bank Rate down to a record low 0.25 percent.
Meanwhile, the German stock index DAX Index climbed 0.76 percent at 9,703 by 09:10 GMT.
The material has been provided by InstaForex Company – www.instaforex.com