German bunds continue downtrend tracking U.S. Treasuries ahead of ZEW economic sentiment

The German bunds remained on the downside Monday, tracking similar movement in the U.S. Treasuries after investors had largely ignored the impact of a government shutdown, following no decision over the country’s tax reform. Also the debt market received softer demand, on optimism over a coaltion government between the Social Democrats and Chancellor Angela Merkel’s Conservative Party.

The German 10-year bond yields, which move inversely to its price, rose 1 basis point to 0.57 percent, the yield on 30-year note also climbed 1 basis point to 1.33 percent and the yield on short-term 2-year traded 1/2 basis point higher at -0.59 percent by 08:25GMT.

Germany's centre-left Social Democrats (SPD) have agreed to start formal coalition negotiations with Chancellor Angela Merkel's conservatives. Ever since Germans went to the polls in September, the chancellor's ruling party has tried to form a government. Initially the SPD ruled out going back into government with Merkel's centre-right CDU and its Bavarian sister party, the CSU. But, after months of stalemate, they voted narrowly for formal talks.

Lastly, the main event in the euro area this week will be the outcome of the ECB’s latest policy meeting on Thursday. The previous meeting in December was a relatively low-key one with little initial news emerging beyond the publication of the ECB’s relatively upbeat updated economic forecasts. However, the subsequent publication of the account of the meeting shone some further light on the debate surrounding the ECB’s guidance on future policy, which currently leaves open the possibility of additional asset purchases after September and foresees rates remaining at current levels well past the horizon of the net asset purchases.

Meanwhile, the German DAX remained tad higher at 13,434.50 by 08:45 GMT, while at 08:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at -33.09 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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