German bunds slump as Ifo’s business condition rises to highest in two years

The German bunds slumped Tuesday following a stronger-than-expected Ifo business climate that further stretched the view that the country’s activity momentum has started to pick up and should be reflected in a hardening of the country's annual GDP growth in fourth quarter.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 1 basis point to 0.025 percent, the yield on long-term 30-year note also climbed 1 basis point to 0.653 percent and the yield on short-term 3-year bond bounced 1 basis point to -0.652 percent by 09:20 GMT.

The Munich-based Ifo institute’s business climate index climbed to 110.5 from 109.5 in September. Ifo’s measure of current economic conditions rose to 115 from 114.7, according to the report. A gauge of expectations improved to 106.1 from 104.5.

On Monday, Germany’s activity sector output rebounded during the month of October, following solid co-operation from private sector output, with the country’s composite Purchasing Managers’ Index (PMI) touching a 3-month high during the period.

Flash Germany PMI Composite Output Index rose to 55.1 in October, from 52.8 in September. Also, lash flash services PMI Activity Index jumped to 54.1 this month, from 50.9 in September, while the flash index for the country’s manufacturing sector rose to 55.1 in October, a33-month high, from 54.3 in the previous month; flash Germany manufacturing Output Index modestly rose to 56.9, compared to 56.4 in September, data released by HIS Markit showed Monday.

Moreover, the European Central Bank in its new survey report mentioned that the median forecast for 2016 Eurozone GDP being upgraded to 1.6 percent, from the previous estimate of 1.5 percent and kept unchanged at 1.4 percent for 2017. On the other hand, inflation forecast was trimmed to 0.2 percent for 2016, left steady at 1.2 percent for 2017, and cut to 1.4 percent for 2018, from prior 1.5 percent.

This drop in the 2018 inflation forecast to further below the ECB's target will be noted by the ECB, although comfort will be taken from the longer-term forecast remaining in line with the target of just-below-2 percent.

Meanwhile, the German stock index DAX Index traded 0.38 percent higher at 10,803 by 09:30 GMT.