German bunds mixed after economy shrinks in Q1; August employment report eyed

The German bunds gained slightly during European trading session Tuesday after the country’s gross domestic product (GDP) for the second quarter of this year, shrunk, disappointing market investors while eyes still remain on the employment report for the month of August, scheduled to be held on August 29 by 09:40GMT for further direction in the debt market.

The German 10-year bond yield, which move inversely to its price, hovered around -0.672 percent, the yield on 30-year note slipped 1 basis point to -0.179 percent and the yield on short-term 2-year traded 1 basis point higher at -0.884 percent by 10:30GMT.

Germany’s detailed national accounts confirmed that the economy contracted for the second quarter out of the past four in Q2, by 0.1 percent q/q, leaving output up just 0.4 percent compared with a year earlier, Daiwa Capital Markets reported.

As expected, the weakness was driven by overseas demand, with exports declining at the steepest pace since Q412, to leave net trade subtracting 0.5ppt from GDP growth. Despite increases in investment in machinery and equipment, a drop in capital spending on construction left total fixed investment down for the first time in three years. And household consumption was up just 0.1 percent q/q, the report added.

So, it was principally thanks to a 0.3ppt positive contribution from private inventories that the contraction wasn’t significantly larger in Q2. That contribution might seem unlikely to be repeated in the current quarter, Daiwa further noted.

Meanwhile, the German DAX traded tad 0.29 percent higher at 11,691.85 by 10:35GMT.