German bunds surge ahead of 30-year auction, August manufacturing PMI

The German bunds surged during European trading session Tuesday ahead of the country’s super-long 30-year auction, scheduled to be held on August 21 by 15:10GMT and the manufacturing PMI for the similar month, due for release on August 22 by 13:00GMT for further direction in the debt market.

The German 10-year bond yields, which move inversely to its price, plunged 4 basis points to -0.686 percent, the yield on 30-year note suffered nearly 3-1/2 basis points to -0.172 percent and the yield on short-term 2-year traded 1-1/2 basis points lower at -0.910 percent by 09:35GMT.

Focus in the euro area today will be on Italian politics, with PM Conte set to make a statement to the Senate at 3pm local time. With the League’s Salvini having effectively pulled the plug on his coalition with the Five Star Movement, Conte might seem bound to announce his resignation today, Daiwa Capital Markets reported.

If he doesn’t, however, he’ll surely face defeat in a vote of no confidence in the Senate. What comes thereafter will depend on President Mattarella, who, on the basis of consultations, will have to determine whether to call a new general election for the autumn – which would seem highly likely to result in a new right-wing government led by the League – or instead propose an alternative government to prepare a challenging 2020 Budget capable of winning the support of a majority in the current parliament, the report added.

If an early election is to be avoided, an agreement will need to be reached between Five Star and the centre-left Democrats, between whom relations over recent years have been dire, Daiwa further noted.

Meanwhile, the German DAX traded flat at 11,719.81 by 09:40GMT.