German bund yields plunge ahead of 10-year bond auction

The German bund yields plunged on Wednesday as investors await 10-year bond auction, which is the first sale in the Eurozone area with negative returns. Also, investors preferred safe-haven instruments amid losses in riskier assets including crude oil and stocks.

The yield on the benchmark 10-year bond fell more than 2 basis points to -0.116 percent and the yield on short-term 2-year note dipped 1/2 basis point to -0.673 percent by 09:30 GMT.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil futures fell as investors took gains after oil prices surged nearly 5 percent in the previous session, partly on the back of a forecast increase in demand next year.

Also, a surprise build in U.S. crude stocks and a stronger U.S. dollar which gained on Wednesday against a basket of currencies weighed on oil prices. The International benchmark Brent futures fell 1.67 percent to $47.66 and West Texas Intermediate (WTI) tumbled 1.32 percent to $46.18 by 09:00 GMT.

Moreover, the Bank of England is also expected to ease interest rates in its monetary policy meeting scheduled to be held on July 14, in an attempt to ease the growing anxiety over the possible breakdown after the Brexit outcome.

The UK as it could herald the first BoE Bank Rate cut since Feb 2009. There is a low probability, but non-negligible risk, that the central bank also resumes its programme of asset purchases, financed through reserves issuance, although this is more likely in August. So it is likely that we see a 25 basis points rate cut on Thursday that takes the Bank Rate down to a record low 0.25 percent.

Lastly, investors will remain keen to focus on the 10-year bund auction scheduled to take place on Wednesday at 09:35 GMT. Meanwhile, the German stock index DAX Index slid 0.15 percent at 9,949 by 09:00 GMT.