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German bunds gain after December manufacturing PMI misses estimates, albeit still in contraction

The German bunds gained during European session Monday after the country’s manufacturing PMI for the month of December missed market expectations, albeit still remaining in the contraction zone, below the 50-point threshold mark that separates expansion from contraction.

The German 10-year bond yield, which move inversely to its price, slipped 1/2 basis point to -0.300 percent, the yield on 30-year note slumped nearly 3 basis points to 0.212 percent while the yield on short-term 2-year traded flat at -0.628 percent by 10:30GMT.

The Flash Germany Composite Output Index – which is based on approximately 85 percent of usual monthly replies – was unchanged at 49.4 in December amid divergent trends at the sector level. Though remaining only modest, growth of service sector business activity ticked up for the third month in a row to the highest since August.

By contrast, manufacturing output posted a faster decline, which helped drag down the headline IHS Markit Flash Germany Manufacturing PMI from November’s five-month high of 44.1 to 43.4.

"The service sector remains resilient, with business activity rising at a stronger pace and business confidence perking up as well, though weak labour market trends are likely to be a restricting factor for the sector as we head into the new year," said Phil Smith, Principal Economist at IHS Markit.

Meanwhile, the German DAX edged tad 0.56 percent higher to 13,354.29 by 10:35GMT.

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