German 10-year bund yield bounced above zero first time since Brexit vote; ECB’s decision eyed

The German 10-year bund yield bounced above zero for the first time on Thursday since the UK left the European Union last month. Also, investors await the upcoming policy decision from the European Central Bank (ECB) and its consequences on markets.

The yield on the benchmark 10-year bond rose more than 2 basis points to 0.011 percent, the yield on long-term 30-year note also jumped more than 2 basis points to 0.557 percent and the yield on short-term 2-year note rose nearly 2 basis points to -0.603 percent by 08:30 GMT.

The European Central bank is expected to leave its 1.8 trillion stimulus unchanged on Thursday, despite economic slowdown in the Eurozone area after the UK left the European Union last month. Also, the European Central Bank will not ease monetary policy any further from prevailing zero percent.

Moreover, the ECB president Mario Draghi is anticipated to react more dovish and may signal some easing moves and/or tweaks to the central bank's bond-buying programme in September. Interestingly, the most pressing issue for the ECB can be considered a technical one; it will have to adjust its QE programme due to impending bond shortages. That applies particularly in Germany, the majority of whose government bonds (those with maturities of less than 7 years) yield less than the -0.40 percent deposit rate minimum threshold.

We expect some adjustments, but probably in September in conjunction with an announced programme extension. The ECB could then expand the universe of eligible bonds by various tweaks, including (a) eliminating the aforementioned minimum yield, (b) enlarging the range of maturities beyond 2-31 years, and/or (c) increasing its issuer and/or country limits from 33 percent of the total.

Lastly, crude oil prices rose after the US Energy Department reported a ninth consecutive weekly drawdown of crude stocks. The International benchmark Brent futures rose 0.36 percent to $47.33 and West Texas Intermediate (WTI) climbed 0.35 percent to $45.91.

Meanwhile, the German stock index DAX Index trading down 0.32 percent at 10,109.5 by 09:00 GMT.