German 10-year bund yields again turn negative as Fed Sep rate hike hopes ease

The German 10-year bund yields again turned negative after a week as the United States Federal Reserve September rate hike hopes faded after reading a series of disappointing economic data released Thursday.

Investors preferred safe-haven assets after retail sales, producer price index and industrial production came well below the market expectations. This further decreased the possibilities of a September rate hike, causing investors to be risk averse.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell more than 4 basis points to -0.008 percent, the yield on long-term 30-year note dipped 3-1/2 basis points to 0.623 percent and the yield on short-term 2-year bond slid 1 basis point to -0.655 percent by 08:40 GMT.

Moreover, the U.S. consumer inflation data are the last set of key data before the Fed meets next week. We doubt the picture here will change sufficiently to alter the inflation view held by the dovish FOMC members, reported ANZ.

Next week’s FOMC meeting is set to be interesting given the recent divergent Fed speak. The dovish view appears to be in the ascendency for now. We expect no change in policy. The Fed is extending its forecasts out to 2019. We expect there to be a flattening in the Fed’s median ‘dot plot’ with just one hike for this year and two hikes per year (compared to three in the June forecasts) thereafter, they added.

Following the U.S. Treasuries, the benchmark 10-year bond yield fell below 1.70 percent mark (down 2 basis points to 1.684 percent) and the yield on short-term 2-year note also dipped below 0.80 percent (down 1/2 basis point to 0.734 percent) by 11:30 GMT.

On Tuesday, Germany’s inflation rate continues to be at a low level in August. According to the Federal Statistics Office, Destatis, the country’s consumer prices dropped in sequential terms, but rose on year-on-year basis. In annual terms, Germany’s consumer prices rose 0.4 percent in August. The inflation rate gauged by the consumer price index continues to be at a lower level.  Inflation gauged by the harmonized European Union standards dropped 0.1 percent in sequential terms and accelerated 0.3 percent year-on-year.

As in the earlier months, low inflation in Germany was mainly because of the drop in energy prices, which fell 5.9 percent. Consumer gained particularly from the prices of mineral oil products that dropped in August on a year-on-year basis. Other energy products’ prices also fell year-on-year. Only exception was electricity prices that increased 0.7 percent year-on-year. Stripping energy prices, the inflation rate would have been 1.1 percent in August, stated Destatis.

Meanwhile, the German stock index DAX Index traded 0.51 percent lower at 10,375 by 08:40 GMT.