German bunds slump on higher risk appetite; UK political turmoil eases

The German bunds slumped on Tuesday as investors cooled on safe-haven instruments amid gains in riskier assets including crude oil and equities. The benchmark DAX index ripped over 2 percent for a second consecutive day.

Also, the UK political pressures eased following the election of new Prime Minister Theresa May and the prospect of a boost to monetary stimulus worldwide supported equities and reduced safe-haven buying.

The yield on the benchmark 10-year bond rose nearly 5 basis points to -0.118 percent, yield on super-long 30-year bonds jumped 6-1/2 basis points to 0.443 percent and the yield on short-term 2-year note bounced 1 basis point to -0.680 percent by 09:30 GMT.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices recovered Tuesday but stayed near two-month lows as increased US drilling, a strong dollar and hints of higher production by Iran and Libya brought worries about a global glut back into focus. The International benchmark Brent futures rose 2.27 percent to $47.30 and West Texas Intermediate (WTI) jumped 1.90 percent to $45.61 by 09:30 GMT.

In terms of data, June final consumer price index rose 0.1 percent m/m, in line with expectations, from 0.1 percent in May. It also remained also climbed 0.3 percent y/y, as per consensus. On the other hand, wholesale price index in June jumped 0.6 percent m/m, from 0.9 percent in May. However, it fell 1.5 percent y/y compared to -2.3 percent previously.

The European Central Bank will not ease monetary policy any further at its meeting next week, according to an overwhelming majority of respondents in a Reuters poll of euro money market traders on Monday.

Following Britain's vote to leave the European Union, which sent financial markets into frenzy, there were some expectations of policy easing from major central banks. But only one of 19 traders polled expected further easing from the ECB when the Governing Council meets on July 21. The regular survey of 21 traders showed the ECB will lend 44 billion Euros to banks, similar to the 44.1 billion Euros maturing from last week.

Apart from this, the IMF in its latest report downgraded its forecast for the German economy to 1.7 percent in 2016 and dipped to 1.5 percent for next year. Also, the IMF trimmed its Eurozone 2017 GDP growth forecast to 1.4 percent, from earlier forecast of 1.6 percent. The IMF mentioned in its report that downside risks to the region have grown due in part to the UK vote and the urges the ECB to further expand asset buying if inflation does not improve.

Lastly, investors will remain keen to focus on the 10-year bund auction scheduled to take place on Wednesday at 09:35 GMT. Meanwhile, the German stock index DAX Index climbed 1.52 percent at 9,983 by 09:30 GMT.