German bund yields sink after US records weak payroll

The German bund yields fell below 0.10 percent mark as well as break its April low of 0.07 percent on Monday after reading weaker than expected US employment report on Friday, which dampened prospects for any near-term action from the US Federal Reserve on interest rates hike. Moreover, investors await Federal Reserve Chair Janet Yellen's speech at 16:30GMT today that is likely to clear the air on Fed's stance on interest rate hike.

On the other hand, the yield on the benchmark 10-year bonds rose ½ basis points to 0.081 percent after ECB's Nowotny said that inflation is forecast to rise and the phase of acute deflation risk is over. The yield on short-term 2-year bonds remained steady at -0.533 percent by 09:00 GMT.

The US May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent. Average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m.

Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices jumped more than 1 percent, supported by the softer dollar after last week's well-below-forecast US jobs report. The International benchmark Brent futures rose 1.13 percent to $50.21 and West Texas Intermediate (WTI) jumped 0.88 percent to $49.05 by 09:10 GMT.

In addition, German factory orders fell sharply in April as a slump in foreign demand highlighted the impact on Europe‘s biggest economy of a slowdown in global trade. Monthly industrial orders contracted by a more-than-forecast 2 percent in April after bounding ahead by an upwardly revised 2.6 percent in March, the Economics Ministry said on Monday. Order books shrank 0.5 percent from April last year.

On Friday, the German central bank (Bundesbank) lowered its economic growth and inflation forecast in its latest report, it cut 2016 GDP forecast to 1.7 percent, as compared to 1.8 percent forecast in December. For 2017 it reduced GDP forecast to 1.4 percent, from 1.7 percent in its previous estimates, for 2018 growth it made an initial forecast of 1.6 percent.

Similarly, it lowered the 2016 inflation forecast to 0.2 percent, from 1.1 percent in December 2017 inflation forecast was also lowered to 1.5 percent, as compared to 2.0 percent in its earlier forecast and for 2018 it made an initial forecast of 1.7 percent.

Meanwhile, the German stock index DAX Index rose 0.26 percent at 10,310 by 9:10 GMT.