European bonds climb on weak industrial output, IMF’s growth outlook

The European bond prices edged higher on Wednesday after reading weak February Eurozone industrial production figures. Also, the International Monetary Fund lowered its world growth estimates for 2016 and 2017 on Tuesday in its latest World Economic Outlook, which pushed bonds prices further up.

The benchmark German 10-year bonds yield, which is inversely proportional to bond price fell 5 pct to 0.152 pct, French 10-year bunds yield dipped 3.95 pct to 0.497 pct, Italian equivalents tumbled 3.58 pct to 1.330 pct, Portuguese 10-year bonds yield inched down 4.20 pct to 3.151 pct and Spanish 10-year bonds yield fell 2.86 pct to 1.497 pct by 1135 GMT.

The Eurozone industrial production in February disappoints, growing at a slower annualized rate than it had in January and below expectations. From January to February industrial production fell 0.8 pct, experiencing the largest losses from non-durable consumer goods and energy, which fell by 1.8 pct and 1.2 pct, respectively, while durable consumer goods rose by 0.4 pct. The EU’s largest and most important economy, Germany, saw the industrial production growth rate move lower from 1.9% in January to 0.9% in February.

The IMF cut its growth forecasts for the Eurozone as the refugee crisis, terrorism and the threat of Britain choosing to exit the EU weighed on the outlook. The IMF said the Eurozone should grow a modest 1.5 pct in 2016, down from the 1.7 pct estimated in January and slower than the 1.6 pct seen in 2015. In 2017, the Eurozone economy would likely expand 1.6 pct, down from the earlier forecast of 1.7 pct.

The Eurozone 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 crude oil prices lost ground early Wednesday as traders took profit following the overnight surge, underscoring the growing mixed views that key oil producers could agree on a production freeze this Sunday.

Meanwhile, the International benchmark for crude oil prices, Brent futures fell 0.92 pct to $44.27, while West Texas Intermediate crude oil dipped 1.45 pct to $41.56 by 1140 GMT.