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Eurozone periphery bonds rally on expectations of weak Q2 GDP; inflation data also in focus

The Eurozone periphery bonds rallied on Thursday as investors sought refuge in the safe-haven instruments ahead of July preliminary consumer inflation data and the second-quarter flash gross domestic product (GDP) reading. Also, weak crude oil prices boosted demand for government securities.

The French 10-year bund yield fell 1 basis point to 0.130 percent, The 10-year Irish 10-year bonds yield dipped 4-1/2 basis points to 0.451 percent, Italian equivalents inched lower 1-1/2 basis points to 1.200 percent, Netherlands 10-year bonds yield tumbled 1-1/2 basis points to 0.022 percent, Portuguese 10-year bonds yield slid 1-1/2 basis points to 2.984 percent and the Spanish 10-year bonds yield inched lower 1 basis point to 1.097 percent by 10:50 GMT.

According to Reuters latest report, the “preliminary” flash estimate of the Eurozone’s quarterly GDP growth for the second quarter to come in at 0.2 percent q/q, against market consensus of 0.3 percent growth, marking a significant slowdown of the Eurozone economic recovery after real GDP jumped by 0.6 percent q/q in the previous quarter. The decline in growth is also due to some payback from the boost from the mild weather in the first quarter.

Moreover, the Eurozone July preliminary consumer inflation is expected to remain flat at 0.1 percent y/y, from 0.1 percent y/y in the month June.

In addition, the Eurozone bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Europe's target. The crude oil prices hit its lowest since May following sluggish global demand and supply glut concerns.

Also, the EIA in its latest report mentioned that the US crude inventories climbed to a seasonally adjusted annual rate of 1.671 million barrels, the consensus was for a fall of -2.257 million barrels, as compared to -2.342 million barrels in the preceding month. The International benchmark Brent futures fell 0.64 percent to $43.59 and West Texas Intermediate (WTI) tumbled 0.19 percent to $41.84 by 09:40 GMT.

Meanwhile, the pan-European STOXX 600 index was down 0.36 percent and the euro-area blue-chip gauge, the STOXX 50 dipped 0.71 percent. The DAX trading 0.02 percent lower and the CAC-40 fell 0.10 percent by 11:00 GMT.

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