German bunds tad higher on weak crude oil prices, likely to remain volatile in absence of key data release

The German bunds strengthened Friday following weakness in crude oil prices. Also, subdued economic growth in the third quarter supported the cause.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1-1/2 basis points to 0.25 percent, the yield on long-term 30-year note dipped 1 basis point to 0.90 percent and the yield on short-term 2-year bond slid 1 basis point to -0.74 percent by 09:20 GMT.

We foresee that the 10-year German yield to hover in the range of 0.20-0.40 percent over next couple of weeks.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Crude oil prices fell on investors cashed in profit ahead of next week’s OPEC meeting. Also, strengthening U.S. dollar lent support. The International benchmark Brent futures fell 0.90 percent to $48.60 and West Texas Intermediate (WTI) dipped 0.81 percent to $47.57 by 09:20 GMT.

Germany’s economic growth slowed in the third quarter of 2016 in the wake of weaker exports and minimal investment. The third quarter gross domestic product (GDP) growth remained unchanged at 1.5 percent y/y, lower than the market expectations of 1.7 percent y/y increase, from prior 1.5 percent. On a quarterly basis, it also stood flat at 0.2 percent q/q.

Also, German exports fell 0.4 percent q/q, from previous up 1.2 percent as Donald Trump presidency threatened to dent Germany's trade prospects.

ECB President Draghi, speaking to the European Parliament, said that monetary support is needed to hit the European Central Bank's inflation target, even as monetary policy needs 'decisive' support from other actors.

On Monday, Chancellor Merkel of Germany has announced that she likes being chancellor and she would like to carry on being one if that is alright with everyone. There had been a little uncertainty in the markets about whether she would be a candidate in next year's election, reported UBS in its morning note.

Meanwhile, the German stock index DAX Index traded 0.15 percent lower at 10,673 by 09:20 GMT. While at 09:00 GMT, the FxWirePro's Hourly Euro Strength Index remained slightly bullish at +85.77 (higher than +75 represents bullish trend).