German bunds slump on firm risk sentiments, ECB decision eyed

The German bunds slumped on Thursday as investors poured into safe-haven instruments amid losses in riskier assets including crude oil and stocks. Also, investors drove-out from safe-haven buying on expectations that the European Central Bank will likely raise growth and inflation forecasts.The yield on the benchmark 10-year bonds, which moves inversely to its price rose 2 basis points to 0.150 percent by 08:40 GMT.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices moved a solid leg higher towards $50 as investors and traders wait for the outcome of the Organization of the Petroleum Exporting Countries meeting later today, where discussion on a collective output ceiling could be revived. The International benchmark Brent futures rose 0.30 percent to $49.77 and West Texas Intermediate (WTI) jumped 0.12 percent to $49.07 by 08:40 GMT.

The European Central Bank is expected to stay on hold at its policy meeting, scheduled on Thursday since certain comprehensive measures that were ruled out in March, are still waiting to be implemented. Against such a backdrop, the Central Bank is most unlikely to act to drop rates any further. Further, the inclusion of corporate bonds to the asset purchase program and the LTROs are likely to occur next month, while the increase in the quantum of the QE program took effect last month, DBS reported. Further, CPI-led inflation in April and May unemployment rate will probably reinforce that inflation will likely remain on the downside with household sector befits recovering from a sharp turn in the jobs market.

In the meantime, Eurozone’s apex bank predicted that May inflation is likely to fall marginally lower by -0.1 percent on year, compared to -0.2 percent in April, with core inflation modestly moving up. April unemployment rate is seen at 10.2 percent, a shade below 10.3 percent month before.

"Brexit risks will also warrant attention after the BoE outlined a cautious approach towards the impending event risk," DBS said in a research report.

On Tuesday, the 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.

Meanwhile, the German stock index DAX Index rose 0.16 percent at 10,221 by 08:40 GMT.