German bunds mixed after European Central Bank keeps policy unchanged

The German bunds were trading mixed on Friday after European Central Bank (ECB) Governing Council decided to keep its monetary policy stance unchanged. The yield on the benchmark 10-year, which moves inversely to its price, moved higher 1.29 pct to 0.235 pct and 2-year bonds yield fell 1.67 pct to -0.487 pct by 0800 GMT.

Yesterday, the ECB Governing Council decided to keep its monetary policy stance unchanged. Additional easing measures were not discussed at the meeting, but the Governing Council left no doubt to act immediately by using all the instruments available within its mandate if new downside risks to the outlook for price stability should arise. Therefore, the easing bias remains unchanged in place. The key ECB interest rates remained on hold and are expected to stay at current or even lower levels for an extended period of time, and well past the horizon of the ECB's net asset purchases. As regards helicopter money, ECB President Draghi pointed out that this instrument is fraught with operational and legal difficulties. In response on the recent criticism on the current monetary policy stance the Governing Council unanimously stressed that the ECB is independent and is acting according to its mandate. With no hints that another review and reconsidering of the monetary policy stance at the June meeting is necessary, the introduction of additional easing measures in that meeting is unlikely.

Moreover, Germany Markit/BME April manufacturing PMI (flash) rose to 51.9, against market expectation of 51.0, from 50.7 in March. Individually, services PMI rose to 54.6, as compared to prior 55.1 and composite PMI rose to 53.8, lower than the investor’s consensus of 54.2, from 54.0 in previous month.

On the other hand, the German government bonds have been closely following developments in oil markets because of their impact on inflation expectations and stock market sentiments. Yesterday, Crude oil prices jumped to 5-month high as Energy Information Administration's (EIA) showed that crude stock rose lower than the market expectation last week. The crude inventories rose 2.1 million barrels, from prior build of +6.6 million barrels for the week ending 15 April. This came alongside a decreases seen in gasoline inventories of -0.1million barrel, from prior -4.2 million barrel and distillate inventories of -3.6 million barrel, as compared to a build of +0.5 million barrel seen prior. Moreover, Market speculation that Petroleum Exporting Countries (OPEC) and Russia will meet in Moscow next month to again strike a deal on oil output freeze, boosted crude oil investors confidence. But, Russian Energy Minister Alexander Novak denied about any such meeting happening in Russia in May.

On Sunday, the negotiations between Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement in the Doha round of talks to strike a deal on oil output freeze. The International benchmark for crude oil prices, Brent futures rose 0.85 pct to $49.94, while West Texas Intermediate crude oil jumped 1.20 pct to $43.70 by 0800 GMT.

Meanwhile, the German stock index DAX Index fell 0.38 pct at 10,393 by 0800 GMT.