German bunds slump as risk appetite returns post 'Brexit'

The German bunds slumped Wednesday as investors cooled on safe-haven instruments amid gains in riskier assets including crude oil and equities. The yield on the benchmark 10-year bonds, which moves inversely to its price rose more than 1 basis point to -0.106 percent, yield on super-long 30-year bonds jumped 1-1/2 basis points to 0.428 percent and the yield on short-term 2-year note climbed 1 basis point to -0.651 percent by 08:30 GMT.

However, the German 10-year yield has continued to hover around -0.10 percent mark, with the risk of heading back down to Friday morning's low of -0.15 percent to 0.17 percent in our view as/when risk aversion generated by the turmoil in the UK picks up again.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, oil prices rose as investors took advantage of a two-day slide in crude following Britain's vote to leave the European Union to lock in lower prices. A looming strike at several Norwegian oil and gas fields threatened to cut output in western Europe's biggest producer, also helped support prices on Tuesday. The International benchmark Brent futures rose 1.06 percent to $49.81 and West Texas Intermediate (WTI) climbed 1.36 percent to $48.50 by 08:30 GMT.

That ECB President Draghi said that Eurozone growth could be 0.5 percent lower over the next 3 years due to Brexit, as a UK recession spills over to the continent's economy. He also added that the ECB would do everything necessary to ensure price stability and has stepped up co-operation with central banks on foreign exchange rates. Concerned by countries trying to correct what they view as misaligned exchange rates, leaders need to address bank vulnerabilities, he added.

On Tuesday, Germany's Merkel tells Bundestag she regrets Brexit decision of British people and everyone should respect Brexit decision. Said Europe has got through many crises and challenges in the past and EU is strong enough to withstand Brexit. Said Germany has special interest in European unification succeeding and it is up to the UK to says how it wants to shape its future with Europe. She further added that Germany will remain a close partner in NATO and wants to maintain close relations with the UK.

Moreover, Germany import price index May rose +0.9% m/m, higher than the market consensus of +0.6 percent m/m, from down -0.1 percent in April. On annual basis, it improved -5.5 percent y/y (expectations was for -5.8 percent y/y) as compared to previous -6.6 percent. Similarly, Germany July GFK consumer confidence rose to 10.1, marginally higher than the market consensus for 9.8, from previous 9.8.

Markets will remain keen to focus on the June German CPI scheduled at 12:00 GMT. Meanwhile, the German stock index DAX Index rose 1.20 percent at 9,561 by 08:30 GMT.