The German bunds plunged on Tuesday as investors cooled on safe-haven assets amid gains in crude oil and equities. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 2bps to 0.167 pct and the yield on the 2-year bonds climbed 1bp to -0.506 pct by 0850 GMT.
The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, the crude oil prices jumped more than 3 pct after long-time bear Goldman Sachs said the market had ended almost 2-years of oversupply following global oil disruptions and flipped to a deficit. Reuters in its recent report said that supply disruptions from Nigeria, Venezuela, the United States and China triggered a U-turn in the oil outlook of Goldman Sachs, which long warned of overflowing storage and another looming crash in prices. Venezuela's oil production has already fallen by at least 188,000 barrel per day (bpd) since the start of the year as PDVSA struggles to make the investment needed to keep output steady. In the United States, crude production has fallen to 8.8 million bpd, 8.4 pct below 2015 peaks as the sector suffers a wave of bankruptcies. And in China, output fell 5.6 pct to 4.04 million bpd in April, compared with the same time last year. Meanwhile, the International benchmark Brent futures rose 0.51 pct to $49.22 and West Texas Intermediate (WTI) jumped 0.98 pct to $48.19 by 0630 GMT.
Moreover, the European Central Bank Governing Council member Weidmann said that the criticism of ECB policy may be because some measures blurred boundaries between monetary, fiscal policy and the Governing Council agreed monetary policy needed to be expansive in the current environment. Said the ECB Council had to be careful not to overstep the boundary to fiscal policy and that was why the bank's latest government bond purchase programme foresaw very limited sharing of liability. But he added Nonetheless he still thinks purchases of government bonds in the euro zone are problematic because the central banks become the biggest creditors of their states. Should let what has been decided take effect and not start speculating about further measures yet again – that applies to interest rates too, said when he was asked about further ECB easing. He said he did not approve of discussions about “helicopter money”, or free cash dished out to citizens in a bid to stimulate spending and inflation, and added that it was not on the table for the ECB's Governing Council. Turning to Greece, he said discussions about a haircut were secondary because servicing debt was not Athens' most pressing problem, which was rather sticking to its programme and managing to stand on its own two feet economically again.
The investors will pay close attention to the minutes of the ECB's last policy meeting due on Thursday (1130 GMT) to see if this criticism is having any impact on the ECB's appetite for further easing. Meanwhile, the German stock index DAX Index rose 0.84 pct at 10,033 on rallying crude prices by 0850 GMT.
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