The German bunds rallied on Monday as investors pour into safe-haven assets amid deepening economic growth fears after reading weaker-than-expected business climate index. Also, tumbling oil prices and weak equities market drove investors towards the safe assets. The yield on the benchmark 10-year bonds, which moves inversely to its price, moved down 6.90 pct to 0.217 pct and the yield on the 2-year bonds fell 2.85 pct to 0.506 pct by 0910 GMT.
The Germany IFO business climate rose to 106.6 in April, lower than market expectation of 107.1, from 106.7 in March. Moreover, the German government bonds have been closely following developments in oil markets because of their impact on inflation expectations and stock market sentiments. Today, crude oil prices tumbled after snapping last week’s 5-month gain on profit taking and report that Saudi Arabia could maintain its total crude output volume with the expansion of an oilfield, injecting fresh concerns about the global supply glut. The International benchmark for crude oil prices, Brent futures fell 1.71 pct to $44.30, while West Texas Intermediate crude oil dipped 1.07 pct to $43.26 by 0915 GMT.
On the other hand, there is pressure from the German government for lower-rated bonds, i.e. in the Eurozone periphery, to no longer have a zero risk-weighting. This would require banks to hold some capital against their bond holdings, and thereby reduce their demand for southern Eurozone bonds. This issue has been a factor inhibiting spread narrowing for BTPs and SPGBs despite stepped-up European Central Bank Quantitative Easing.
The markets in the Germany will now focus on a greater flow of economic data throughout the week, retail sales on unemployment change on Thursday (0755 GMT), Consumer Price Index (CPI) at (1200 GMT) and retail sales on Friday (0600 GMT). The investors will also look forward to next week’s FOMC meeting on Wednesday, 27th April.
Meanwhile, the German stock index DAX Index fell 1.20 pct at 10,247.50 by 0915 GMT.
The material has been provided by InstaForex Company – www.instaforex.com