German bunds decline on higher risk appetite, upbeat US payroll

The German bunds declined Monday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. Also, better than expected US employment report dove-out trades from safe-haven buying.

The yield on the benchmark 10-year bond rose 1 basis point to -0.062 percent and the yield on short-term 30-year note jumped 1-1/2 basis points to 0.447 percent by 09:30 GMT.

The German bonds have been closely following developments in oil markets because of their impact on inflation expectations. The crude oil prices rebounded by reports of renewed talks by some members of the Organization of the Petroleum Exporting Countries (OPEC) to reduce output. The International benchmark Brent futures rose 1.24 percent to $44.83 and West Texas Intermediate (WTI) jumped 1.34 percent to $42.36 by 10:00 GMT.

The July US Labour Department employment situation report revealed a considerable +255k increase in non-farm payrolls, which comes well above market expectations for a +180k increase, as compared to the revised +292k result that occurred in June (previous was  +287k). This comes alongside no change in the unemployment rate at 4.9 percent, above expectations for a 4.8 percent result.

We expect that it is likely to be difficult for the investors to find any dovishness in this report, keeping alive September 21 Fed hike expectations (Bloomberg’s implied probability is at 26 percent).

In terms of recent economic data release, German industrial production for June rose 0.8 percent m/m, a tad above expectations and after an upwardly-revised -0.9 percent fall the previous month. On annual basis points, it increased 0.5 percent.

Lastly, markets will also remain keen to focus on the upcoming economic data, highlighted by trade balance, Q2 GDP and consumer inflation.

Meanwhile, the German stock index DAX Index traded 0.88 percent higher at 10,458 by 10:10 GMT.