European bonds down as oil tops $50 a barrel

The European bonds traded modestly lower on Thursday as oil prices cleared $50 for the first time in 2016 and raised the prospects of a future boost to the bloc's near-zero inflation. The benchmark German 10-year bonds yield, which moves inversely to its price rose 1bp to 0.160 pct, French 10-year bunds yield climbed 1bp to 0.487 pct, Italian equivalents inched up 1bp to 1.364 pct, Netherlands 10-year bonds yield up 1bp at 0.364 pct, Portuguese 10-year bonds yield jumped 2bps to 2.981 pct, Spanish 10-year bonds yield ticked higher 2bps to 1.497 pct and British 10-year bonds yield hovered at 1.458 pct by 0930 GMT.

The European 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. Today, crude oil prices crossed $50 mark for first time in seven months after the U.S. government reported a larger-than-expected drop in crude inventories. According to the US DOE, crude inventories decreased 4.2 million barrels, as compared to a build of +1.3 million barrels seen prior for the week ending 20 May. This came alongside an increase seen in gasoline inventories of +2.0 million barrels, from a draw of -2.5 million barrels seen prior and a decrease in distillate inventories of -1.3 million barrels, against a draw of -3.2 million barrels. The International benchmark Brent futures rose 0.70 pct to $50.09 and West Texas Intermediate (WTI) jumped 0.69 pct to $49.90 by 0900 GMT.

Yesterday, the Euro zone ministers agreed to release EUR 10.3 billion in new funds for Greece in recognition of fiscal reforms pushed through by Prime Minister Alexis Tsipras's leftist-led coalition. According to Reuters recent report, bigger step was a deal by which the euro zone agreed to offer Athens debt relief in 2018, if necessary, to meet agreed criteria on its payments burden. That secured an agreement from the International Monetary Fund to again join the euro zone in funding the bailout of Greece.

Meanwhile, the pan-European STOXX 600 index was down 0.21 pct and the euro-area blue-chip gauge, the STOXX 50 dipped 0.14 pct. The FTSE 100 Index rose 0.12 pct, the DAX trading 0.38 pct higher and the CAC-40 ticked up 0.18 pct by 0935 GMT.