German bunds trade flat ahead of 2-year schatz auction

The German bunds traded nearly flat Wednesday as investors await the short-term two-year schatz auction.    

The yield on the benchmark 10-year bond, which moves inversely to its price, hovered around -0.137 percent, the yield on long-term 30-year note remained steady at 0.423 percent and the yield on short-term 2-year bond rose 1/2 basis point to -0.693 percent by 08:20 GMT.

Bunds outperformed on Tuesday, thanks to woes in the German banking system. The 10-year German yield dipped below recent lows of -0.12 percent to a 2-month low of -0.16 percent at one point and would now seem to have entered a range between -0.20 percent (its record low) and -0.10 percent for now. The 10-year T-note/Bund yield edged above the 170 basis points mark and will likely widen to last week's highs of 173-174 basis points.

European Central Bank council member and Estonia Central Bank head Hansson said that the Eurozone economy is expanding beyond its potential growth rate, which is depressed in part due to the lack of structural reforms. This would argue for less-loose monetary policy, but Hansson is one of the most hawkish policymakers.

Moreover, ECB president Mario Draghi speaking in Frankfurt said that structural reform needed to lift rates from lower bound and lower equilibrium rate caused ECB to adopt negative interest rates, in need for more robust fiscal policy prescription.

On Monday, Germany's IFO Business Climate index jumped unexpectedly to 109.5, fully 3.3 percentage points above the previous month's level of 106.2, against consensus expectations of a marginal improvement to 106.3, and representing a 2-year high. Both the Current Assessment and Expectations indices rose by 1.8 and 4.4 points respectively.

Lastly, investors also remained keen to focus on the series of upcoming economic data, highlighted by the unemployment rate, consumer inflation and retail sales.

Meanwhile, the German stock index DAX Index traded 1.36 percent higher at 10,502.50 by 08:20 GMT.