German bunds sag following weakness in U.S. Treasuries, producer prices rebound

The German bunds slumped Tuesday, following weakness in the United States Treasuries. Also, rebound in the country’s producer prices drove-out investors from safe-haven buying.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose more than 2 basis points to 0.27 percent, the long-term 30-year bond yield climbed 3-1/2 basis points to 1.00 percent and the yield on short-term 3-year bond bounced 1-1/2 basis points to -0.78 percent by 09:00 GMT.

The German bunds have been closely following developments in the U.S. debt market. The benchmark 10-year bonds witnessed a heavy sell-off, pushing yields by 4-1/2 basis points to 2.58 percent. We foresee that the bund prices will keep drifting between small gains and losses in quiet trading due to a long global Christmas holidays.

Germany’s November Producer Price Index (PPI) rose 0.3 percent m/m, stronger than market expectations of 0.1 percent m/m growth, down from 0.7 percent in October. On an annual basis, it came at 0.1 percent y/y, the market was expecting a decline of -0.2 percent y/y, from prior down -0.4 percent.

Overnight, the Federal Reserve Chair Janet Yellen commented that the United States is now seeing its strongest labour market in nearly a decade as job creation has continued at a relatively steady pace. Also added that she has seen signs of wage growth improving and that weekly earnings for younger workers are making strong gains.

Moreover, the Federal Open Market Committee increased the fed funds rate to a 0.50-0.75 percent range last Wednesday, as widely expected. The statement noted that information received since the November meeting indicates that the labour market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.

Also, the new projections showed that the central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.

Lastly, markets will remain keen to focus on the upcoming economic data and events, highlighted by producer price index, ECB economic bulletin and GfK German consumer climate.

Meanwhile, the German stock index DAX Index traded 0.12 percent higher at 11,440 by 09:10 GMT. While at 09:00 GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at -26.63 (lower than -75 represents a bearish trend).