Euro Bonds, Gilts tumble on tracking weak crude oil

Eurozone bond yields declined on Thursday, led by a fall in oil prices that further drove long-term inflation expectations close to 3-week lows. On the other hand, Gilts opened 10 ticks higher than the settlement of 120.82 as weak equities and pre Easter caution underpinned core fixed income space. 

Meanwhile, Brent crude oil, the global benchmark, was trading lower -1.90% at $39.6, pressurising bonds yield further.

German 10-year Bund yields fell 2bps to 0.178%, which is the lowest in two weeks. Moreover, most other Eurozone bond yields were also down about 2bps, with Italian 10-year yields trading at 1.27%, Spanish yields at 1.44% and Portuguese yields at 2.77%. Similarly, Gilts were also trading lower -1.17% after snapping early gains on following weak cues from crude oil.

"The market is trying to digest the drop in oil prices,” said Christian Lenk DZ Bank rate strategist.

Lastly, we foresee that the volatility in the European bonds, mainly caused from the speculation that the Federal Reserve will raise interest rates more aggressively than market expectation, will dampen the demand for fixed-income assets.