The German bunds slumped Wednesday as the market got rattled on the rumour that the European Central Bank (ECB) might be considering a taper after the bond buying program gets concluded in March.
The yield on the benchmark 10-year bond, which moves inversely to its price, rose 5 basis points to -0.042 percent, the yield on long-term 30-year note also jumped 6 basis points to 0.547 percent and the yield on short-term 2-year bond climbed nearly 1 basis point to -0.678 percent by 09:20 GMT.
The ECB will probably taper its bond purchases when the time comes, according to unnamed central bank officials cited by Bloomberg. The report doesn't say when this may start happening, but refers to its being done in increments of 10 billion Euros per month. The decision will depend on the economic outlook, as well as how the ECB addresses the scarcity of assets to buy.
The idea of eventual tapering is natural, but this report may raise speculation about whether the current QE pace of 80 billion Euros per year (since last March) may be reduced as soon March 2017 -- which would be earlier than expected.
Moreover, the German bonds have been closely following developments in oil markets because of their impact on inflation expectations. Crude oil prices bounced above $50 a barrel after a report that U.S. fuel inventories may have fallen for a fifth straight week. The International benchmark Brent futures rose 1.63 percent to $51.72 and West Texas Intermediate (WTI) also jumped 1.62 percent to $49.48 at 09:20 GMT.
Lastly, investors remained keen to focus on the series of upcoming economic data, highlighted by PPI, service PMI, retail sales and industrial production.
Meanwhile, the German stock index traded 0.59 percent lower at 10,549.30 by 09:20 GMT.
