German bunds slump as Eurozone consumer inflation jumps to three-year high

The German bunds slumped Thursday after recent data showed that the Eurozone consumer inflation jumped to 3-year high, raising market expectations for the European Central Bank (ECB) to hike interest rate in 2017.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 1 basis points to 0.28 percent, the long-term 30-year bond yields also climbed 2 basis points to 1.05 percent and the yield on short-term 2-year bond bounced 2 basis points to -0.76 percent by 09:30 GMT.

The Eurozone preliminary Dec HICP inflation rate jumped to 1.1 percent y/y from 0.6 percent previously. This exceeds the Bloomberg published consensus of 1.0 percent, but is not a surprise following Tuesday's high German CPI figures, with the rise mainly due to oil prices. This is a 3-year high. The core rate (according to both the narrow and broad measures) also picked up, unexpectedly, to 0.9 percent y/y from 0.8 percent.

Moreover, Germany’s consumer inflation rose 1.7 percent from a year ago, recording the biggest jump on record, the Federal Statistics Office in Wiesbaden said on Tuesday. Economists surveyed by Bloomberg predicted an increase of 1.3 percent. The reading is the strongest since July 2013 and follows a rate of 0.7 percent the previous month. Prices rose 1 percent from November.

Additionally, Germany Markit/BME services PMI rose to 54.3 in December, higher than the market expectations of 53.8, from previous 53.8 in November. Also, Markit's final composite Purchasing Managers' Index (PMI), rose to a five-month high of 55.2 in December from 55.0 in November.

German unemployment extended its decline in December amid signs that growth in Europe’s largest economy accelerated at the end of last year. The number of people out of work fell by a seasonally adjusted 17,000 to 2.638 million, data from the Federal Labour Agency in Nuremberg showed on Tuesday. Economists in a Bloomberg survey forecast a drop of 5,000. The jobless rate remained unchanged at 6 percent, matching the lowest level since reunification.

Meanwhile, the German stock index DAX Index traded flat at 11,577 by 09:30 GMT. While at 09:00 GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at -46.06 (lower than -75 represent a bearish trend).