The German Bunds hit lowest yields in a year on Monday amid wave of bond redemption and coupon payments. Also, the Euro zone 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. The International benchmark for crude oil prices, Brent futures fell 0.21 pct to $41.85, while West Texas Intermediate crude oil dipped 0.58 pct to $39.49 as investors took profits after crude soared more than 6 pct on Friday.
The benchmark 10-year Bund yields fell 2.7 bps to 0.075 pct on Monday, within sight of a record trough of 0.05 pct.
At 55 billion euros, the amount of cash flowing back to investors this week is 5-times that of the debt scheduled to be sold via new bonds, bolstering demand in secondary markets that is already supported by the European Central Bank's recently upsized quantitative easing scheme, according to recent Reuters report.
The German bonds (the Eurozone benchmark) are anticipated to be the biggest beneficiary of the recent on-going economic and political risk.
“German Bunds look well supported by the benign cash flow profile and shaky risk sentiment, said Commerzbank strategist Benjamin Schroeder.
The ECB's monthly asset purchases rose by 20 billion euros to 80 billion euros last week and much of that additional buying is expected to be targeted at government bonds in the near term. Plans to include corporate bonds in the scheme take effect later this quarter.
The German 10-year yield is heading for a test of the all-time low 0.05 pct. We are wary at current absurd levels and “fear” a sudden correction like this time last year. The same ingredients are available: a unilaterally positioned market (long), low liquidity, more Fed tightening ahead and improving growth perspectives. Therefore, it would ideal to start selling Bunds.
The material has been provided by InstaForex Company – www.instaforex.com