German bunds suffer after August trade balance cheers investors; 10-year auction in focus

The German bunds suffered during European session Tuesday after the country’s trade balance for the month of August cheered market participants ahead of the 10-year auction, scheduled to be held on October 10 by 09:40GMT.

The German 10-year bond yields, which move inversely to its price, rose nearly 1-1/2 basis points to 0.554 percent, the yield on 30-year note jumped nearly 2 basis points to 1.186 percent and the yield on short-term 2-year traded tad higher at -0.560 percent by 09:00GMT.

Following yesterday’s weak German manufacturing data – output in the sector fell 0.1 percent m/m in August following a decline of 1.9 percent m/m previously to leave the average for the first two months of Q3 tracking more than 1-1/2 percent below the Q2 average –  today’s German trade data for the same month were disappointing too. Indeed, contrary to the expected rise, export values fell for the second successive month too, again by 0.1 percent m/m following a decline of 0.8 percent m/m in July.

But, particularly striking, German imports plunged a hefty 2.7 percent m/m, all but reversing the rise the previous month. As a result, on a seasonally adjusted basis the trade surplus rebounded EUR2.4 billion from July’s more-than four-year low to EUR18.3 billion, still however tracking well below the Q2 average close to EUR20 billion.

So, while the volume data have yet to be released, and factory orders from abroad (particularly from outside the euro area) picked up in August, at face value net trade appears likely to have acted as a drag on German GDP growth for the third consecutive quarter in Q3.

Meanwhile, the German DAX slipped 0.05 percent to 11,940.67 by 09:10GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at -63.75 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex