German 10Y bund hovers around zero ahead of Fed policy decision, Brexit risk persists

The German 10-year bund yield hovered around zero on Wednesday as investors awaited Fed policy decision and Fed Chair Yellen’s post-statement press conference.

Meanwhile, the yield on the benchmark 10-year bonds, which moves inversely to its price hovered around zero percent mark (dipped below zero levels to -0.03 percent in the early Asian session) and the short-term 2-year bund yield remained steady at -0.572 percent by 08:00 GMT.

The FOMC (Federal Open Market Committee) of Federal Reserve is quite unlikely to announce an increase of interest rates in Wednesday’s meeting. On balance, markets look to see how the FOMC is interpreting recent data weakness (particularly employment) and how it may alter intentions to raise rates further in 2016.

In many respects, the December move to raise rate was viewed simply as the Fed looking to get the show on the road, allowing them to possibly maintain a shallow rate trajectory as they move towards more normal policy. Hence, clear focus will on Federal Reserve Chair Janet Yellen's speech in an attempt to estimate the Fed's likely next step to raise interest rate.

Moreover, the latest polls by various corporate bodies in the United Kingdom in run up to the June 23 Brexit referendum indicate that the percentage of citizens in favor of "leaving" the European Union (EU) has outnumbered those who want to "remain", raising the possibility that Britain might leave the EU after 43 years of membership in the bloc.

According to a recent poll on Brexit by YouGov, showed 46 percent of participant are in favour of ‘Leave’ while 39 percent wanted to ‘Remain’, rest being indecisive. Further, a new UK poll on the EU by ICM for the Guardian shows a 6 percent lead for the Leave side (53-47 percent), when undecided of 6-7 percent were excluded. Reportedly the results were the same for polls conducted online and by phone. This contrasts with prior rumours of a similarly-sized pro-Remain balance.

According to the latest Betfair odds, the implied probability of the UK voting to remain in the EU has now fallen to 55 percent, down from 59 percent earlier and around 64 percent yesterday. Last Thursday the implied probability to remain peaked at 78 percent.

In addition, the German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil tumbled more than 1 percent after data showed a surprise build in U.S. crude inventories last week, adding to the market's nervousness around Britain's vote next week on whether to leave the European Union. The American Petroleum Institute (API) showed U.S. crude inventories rose by 1.2 million barrels in the week to June 10 to 536.7 million, against market consensus for a decrease of 2.3 million barrels. The International benchmark Brent futures fell 1.40 pct to $49.13 and West Texas Intermediate (WTI) dipped 1.42 pct to $47.80 by 05:30 GMT.

Meanwhile, the German stock index DAX Index rose 1.17 percent at 9,633.50 by 8:00 GMT.