Eurozone periphery bonds gain as investors wary ahead of Fed announcement

The Eurozone periphery bonds gained on Wednesday as investors sought refuge in the safe-haven instruments ahead of the Federal Reserve monetary policy decision. Also, weak crude oil prices boosted demand for government securities.

The French 10-year bunds yield fell nearly 2 basis points to 0.182 percent, The 10-year Irish 10-year bonds yield dipped nearly 3 basis points to 0.494 percent, Italian equivalents inched lower 1 basis point to 1.248 percent, Netherlands 10-year bonds yield tumbled more than 1 basis point to 0.076 percent, Portuguese 10-year bonds yield slid 1/2 basis points to 3.039 percent and the Spanish 10-year bonds yield inched lower ½ basis point to 1.110 percent by 11:10 GMT.

The Federal Open Market Committee (FOMC), at its upcoming meeting is expected to keep the federal funds rate on hold at 0.25 percent – 0.5 percent. Investors will remain keen to focus on the comments made by the Fed Chair Janet Yellen for any signals about future policy.

Moreover, it is worth remembering that in the last FOMC meeting minutes, most of the discussion was about the growth and development in the labour market because of subdued employment reports in April and May. Therefore, the central bank is likely to welcome the recovery seen in employment in June and the upheaval signifies that risk is skewed towards a more hawkish Fed despite Brexit.

According to Reuters, the European Central Bank purchases of government bonds are set to significantly outstrip new debt sales until the end of the year, helping pin yields near record lows in a trend strategists say will persist for months.

In terms of economic data release, the ECB reported that loans to non-financial corporations rose 1.7 percent y/y in June, up from 1.6 percent the previous month, and loans to households (adjusted) picked up to an identical pace of 1.7 percent y/y. Also, M3 money supply accelerated to 5.0 percent from prior 4.9 percent.

In addition, the Eurozone bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Europe's target. Crude oil prices continue to trade lower due to sluggish global demand and supply glut. The International benchmark Brent futures fell 1 percent to $44.77 and West Texas Intermediate (WTI) tumbled 0.56 percent to $42.68 by 11:10 GMT.

Meanwhile, the pan-European STOXX 600 index was up 0.57 percent and the euro-area blue-chip gauge, the STOXX 50 jumped 1.02 percent. The DAX trading 0.83 percent higher and the CAC-40 rose 1.48 percent by 11:10 GMT.