German 10-year bund yields rise to highest in 5 months; Fed rate hike speculations boost investors’ risk appetite

The German 10-year bund yields touched its highest levels in five months Thursday as investors moved away from safe-haven buying to riskier assets including equities and crude oil amid rising speculations of the Federal Reserve interest rate hike.

We would expect the yields to stay in the range of 0.08-0.15 percent in the short-term, with an upward break likely eventually but not imminently.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose more than 3 basis points to 0.12 percent, the yield on long-term 30-year note climbed 4 basis points to 0.767 percent and the yield on short-term 3-year bond bounced 1-1/2 basis points to -0.624 percent by 08:30 GMT.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Crude oil prices recovered from previous losses on fresh buying and concerns over Venezuela's stability. The International benchmark Brent futures rose 0.84 percent to $50.40 and West Texas Intermediate (WTI) jumped 0.51 percent to $49.43 by 08:30 GMT.

On Tuesday, the Munich-based Ifo institute’s business climate index climbed to 110.5 from 109.5 in September. Ifo’s measure of current economic conditions rose to 115 from 114.7, according to the report. A gauge of expectations improved to 106.1 from 104.5.

On Monday, Germany’s activity sector output rebounded during the month of October, following solid co-operation from private sector output, with the country’s composite Purchasing Managers’ Index (PMI) touching a 3-month high during the period.

Flash Germany PMI Composite Output Index rose to 55.1 in October, from 52.8 in September. Also, flash services PMI Activity Index jumped to 54.1 this month, from 50.9 in September, while the flash index for the country’s manufacturing sector rose to 55.1 in October, a33-month high, from 54.3 in the previous month; flash Germany manufacturing Output Index modestly rose to 56.9, compared to 56.4 in September, data released by HIS Markit showed Monday.

Meanwhile, the German stock index DAX Index traded 0.42 percent higher at 10,756 by 08:30 GMT.