German bunds slide after unemployment rate falls, Euro CPI eyed

The German bunds slumped on Tuesday after data showed that May unemployment fell more than expected and the jobless rate in Europe's biggest economy hit a record low. Also, investors awaited a Euro zone inflation report that may signal whether the ECB’s efforts to boost consumer prices and avoid deflation are beginning to bear fruit. The yield on the benchmark 10-year bonds, which moves inversely to its price rose more than 1 basis point to 0.178 percent by 0835 GMT.

German unemployment declined by 11k in May, consensus was for -5k fall, as compared to -16k previously, with the claimant count u/e rate dipping unexpectedly to 6.1%. Seasonally adjusted number of people seeking work dropped below 2.7 million for the first time ever since German reunification in 1991. In addition, the pan-German preliminary May HICP inflation rate climbed more than expected, to 0.0 percent y/y, vs the consensus of -0.1 percent and -0.3 percent the previous month.

On Friday, the Fed Chair Yellen on Friday said that if economic gains continue and if the labour market continues to improve that it is appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate. Although lacking a time factor, this continues to point to increased support for a summer rate hike from the FOMC.

The markets will now focus on Euro zone May CPI at 0900 GMT, May manufacturing PMI (0755 GMT) on Wednesday and European Central Bank ECB) June interest rate decision on Thursday (1145 GMT). Meanwhile, the German stock index DAX Index dipped 0.27 percent at 10,306 by 0835 GMT.