German bonds steady as investors await Yellen’s testimony

The German government bonds traded nearly flat on Tuesday as investors await Federal Reserve chair Janet Yellen's testimony to lawmakers and Britain's EU membership vote later this week.

The yield on the benchmark 10-year bonds, which moves inversely to its price hovered around 0.062 percent mark, yield on super-long 30-year bonds rose 1 basis point to 0.663 percent and the yield on short-term 2-year note also remained steady at -0.579 percent by 09:10 GMT.

The German constitutional court, while saying it is bound by the European Court of Justice's ruling approving the ECB's OMT programme, an emergency bond market support plan that has never been activated, set six conditions for German participation.

Also, these include that the volume of purchases must be limited in advance, the bonds would generally not be held until maturity, and bond purchases must be from states that have financial market access. We see that the latter condition would seem to nearly defeat the purpose of the programme. The Bundestag and German government would also need to monitor volumes and the risk structure of bonds to avert any 'concrete risk' to the German budget.

The recent polls in the United Kingdom in run up to the June 23 Brexit referendum indicate that the percentage of citizens in favour of "Remain" the European Union (EU) has outnumbered those who want to "Leave", easing the possibility that Britain might leave the EU after 43 years of membership in the bloc.

According to the NatCen poll results on the United Kingdom referendum campaign, 53 percent would vote to 'Remain' in the European Union, while, 47 percent would vote to 'Leave'. Similarly, the ORB/Daily Telegraph poll results on the United Kingdom referendum campaign, 53 percent would vote to 'Remain' in the European Union, while, 46 percent would vote to 'Leave'.

On Monday, the Germany May PPI May rose 0.4 percent m/m, tad higher than the market consensus of +0.3 percent m/m, from +0.1 percent in April. On annual basis, it improved -2.7 percent y/y, market expectations was for -2.9 percent, as compared to previous -3.1 percent.

Markets will remain keen to focus on the first leg of Fed Chair Yellen’s semiannual monetary policy testimony before Congress on Tuesday (before the Senate Banking Committee) and Thursday’s referendum on the United Kingdom’s membership of the European Union. The European Central Bank president Mario Draghi is also due to speak at 13:00 GMT.

Meanwhile, the German stock index DAX Index rose 0.12 percent at 9,971.50 by 09:10 GMT.