German bunds gain ahead of the July inflation data

The German bonds gained Friday ahead of the preliminary July HICP inflation data, which is forecast to ease marginally to 1.5 percent in July from 1.6 percent in June.

The benchmark German 10-year bond yields, which moves inversely to its price, jumped 3 basis points to 0.56 percent, the yield on long-term 30-year note surged nearly 4 basis points to 1.34 percent and the yield on short-term 3-year traded 1-1/2 basis points higher at -0.56 percent by 09:00GMT.

Bunds benefited from Treasuries' initially-positive reaction to the FOMC statement, but the 10-year German yield remains between 0.50 and 0.60 percent. We expect this range to prevail over the short period of time, our slight bias is on the upside.  While considering the impending European Central Bank tapering of the quantitative easing, while the Fed presumably tapers its bond reinvestments from September. The 10-year T-note/Bund yield spread remains in its 170-180 basis points range. On Friday, Eurozone economic confidence comes out as well as German preliminary July HICP inflation. The latter – which is a good indication of the Eurozone rate -- is expected to dip slightly.

German preliminary July inflation data is due today at 1200 GMT. The consumer price index (CPI) for his month is expected to come at +0.2 percent m/m and +1.5 percent y/y. On the other hand, HICP is predicted to come at +0.3 percent m/m and +1.4 percent y/y.

The Federal Open Market Committee (FOMC) decided to leave interest rates unchanged, keeping its overnight lending rate at 1.00 percent to 1.25 percent as it remained slightly concerned about recent inflation trends. However, the central bank stated that it expects to start winding down its massive balance sheet “relatively soon”, provided that the economy evolves broadly as anticipated.

Meanwhile, the pan-European STOXX 600 index slumped 1.08 percent to 378.21, German DAX fell 0.82 percent to 12,112.00, France’s CAC 40 plunged 1.44 percent to 5,109.80 and the PSI20 Index traded 1.08 percent lower at 5,193.88 by 09:20 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained highly bullish at 156.05 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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