The German bunds plunged on Wednesday as investors cashed in profit after snapping 3-week rally driven by weak crude oil and global growth concern. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 7.11 pct to 0.211 pct and the yield on the 2-year bonds climbed 0.81 pct to -0.491 pct by 0840 GMT.
The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices tumbled on concerns that slowing demand and rising Middle East production would extend a global supply overhang. The United States crude inventories rose by 1.3 million barrels in the week to April 29 to 539.7 million barrels, according to data from the American Petroleum Institute, which further weakened the investor sentiments. Also, Iraq said that its oil shipments from southern fields averaged 3.364 million barrels per day in April, up from 3.286 million in March and production from top exporter Saudi Arabia was 10.15 million barrels per day in April. The International benchmark Brent futures fell to $44.97, from yesterdays $45.56 and West Texas Intermediate (WTI) declined to $ 43.72, against yesterdays $44.40.
On the other hand, investors did not react to the weak German and Euro zone economic data. The German April service PMI fell to 54.5, lower than the market expectation of 54.6, from 54.6 in March, hinted that the business activity’s growth rate in Germany slowed slightly. Moreover, Euro zone service PMI declined to 53.1, as compared to 53.2 in March.
“We had a big move up in the Bund yield to 30 bps, so everyone was waiting to set up longs and a reason to go back into the market and for now there's just a bit of a correction,” said Martin Van Vliet senior rates strategist at ING to Reuters.
We foresee that the German bunds will gain after taking weak cues emerging from crude oil prices. Meanwhile, the German stock index DAX Index fell 0.47 pct at 9,880 by 0840 GMT.
The material has been provided by InstaForex Company – www.instaforex.com