German Bunds climb on Yellen’ s dovish comments

The German 10-year Bund yields slipped closer to their record lows on Wednesday following dovish comments made by the Federal Reserve Chair Janet Yellen.  The benchmark for euro zone borrowing costs fell 2 bps to 0.127 pct, within a whisker of this year's low of 0.102 pct and an all-time low of 0.05 pct hit last year.

The Fed Chair Yellen at the Economic Club of New York said that caution in raising rates is especially warranted and the Fed has considerable scope for stimulus if needed and the central bank could deploy forward guidance and QE if needed. In terms of the outlook for rates, Yellen reiterated that the FOMC expects gradual rate increases in the coming years but noted that the future rate path is necessarily uncertain.

"Fed Chairwoman Yellen sounded very dovish and discounted the recent hawkish rhetoric by some Fed governors and that triggered some repositioning in rates markets," said Mathias van der Jeugt KBC rates strategist.

"Pressure will definitely be on the ECB and they obviously don't like a strong single currency especially given all their efforts to ease monetary policy," he added

Lastly, Germany is due to publish March inflation data later in the day, while the figures for the whole euro zone will be published on Thursday. 

In addition, Italy plans to auction 3.0-3.5 billion euros of new 5-year bonds, 2.5-3.0 billion euros of 10-year bonds and 1.0-1.5 billion euros of floating-rate CCTeu certificates maturing in 2022. Similarly, Germany sells up to 4 billion of 5-year bonds. Most euro zone bond yields were 1-2 basis points lower.