European bonds gain on weak economic growth, bearish tone

The European bonds gained on Friday as investors pour into safe-haven assets amid deepening economic growth fears after reading weaker than expected Q1 Gross Domestic Product (GDP) figure. Also, losses in riskier assets including stocks and oil supported the cause. The benchmark German 10-year bonds yield, which is inversely proportional to bond price fell 2bps to 0.134 pct, French 10-year bunds yield dipped 2bps to 0.487 pct, Italian equivalents tumbled 2bps to 1.481 pct, Spanish 10-year bonds yield inched lower 1bps to 1.619 pct and Portuguese 10-year bonds yield fell 3bps to 3.211 pct, Netherlands 10-year bonds yield moved down 2bps to 0.354 pct, British 10-year bonds yield fell 2bps to 1.263 pct by 0910 GMT.

The European Union 2016 first quarter GDP rose 0.5 pct q/q, against market expectation of 0.6 pct, as compared to 0.6 pct in the previous quarter. On annual basis, it climbed 1.5 pct y/y, lower than the market consensus of 1.6 pct rise, from 1.6 pct in last quarter of 1.6 pct.

Moreover, 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, the crude oil prices fell in early trading on Friday as a stronger USD weighed and Russia warned that a global crude supply overhang could last into next year. In Canada, crude production outages from oil sand fields following forced closures due to wildfires still stood around 1 million bpd as of Wednesday, although operators said they were gradually ramping up output. The International benchmark Brent futures fell 0.96 pct to $47.63 and West Texas Intermediate (WTI) tumbled 1.11 pct to $46.18 by 0700 GMT.

Meanwhile, the pan-European STOXX 600 index was down 0.62 pct and the euro-area blue-chip gauge, the STOXX 50 dipped 0.65 pct. The FTSE 100 Index down 0.67 pct, the DAX trading 0.60 pct lower and the CAC-40 fell 0.69 pct by 0910 GMT.