German bonds plummet as investors await August CPI, unemployment rate

The German government bonds plummeted Wednesday as investors remained cautious ahead of the release of the country’s consumer price-led inflation index for the month of August, due today by 12:00GMT. Also, German unemployment rate, due on August 31 will guide debt markets thoroughly.

The German 10-year bond yields, which moves inversely to its price, jumped nearly 2 basis points to 0.35 percent, the yield on the 30-year note climbed 1-1/2 basis points to 1.11 percent and the yield on short-term 3-year traded flat at -0.68 percent by 09:00GMT.

A key focus in the euro area today will be the first estimates of inflation in August, with the flash national figures from Germany and Spain. The EU-harmonised measures for both countries are expected to increase – with German inflation forecast to rise 0.2ppt to 1.7 percent y/y and Spanish inflation forecast to rise 0.1ppt to 1.8 percent y/y – consistent with estimates of an increase of at least 0.1ppt in the euro area figure to 1.4 percent y/y or above.

"Those increases, however, will be principally due to higher energy inflation, and so we expect core inflation to have remained highly subdued. That, of course, will be a disappointment for the ECB as it finalizes its latest economic projections ahead of publication next week. Indeed, not least due to recent euro strength, we expect the ECB to revise down its 2018 forecasts for headline and core inflation," Daiwa Capital Markets commented in its latest research report.

More encouragingly for the ECB, the Commission’s August business and consumer survey results, also due today, seem highly likely to suggest that economic growth momentum remains solid. After most economic sentiment surveys released over the past week surprised on the upside, the Commission’s headline euro area economic sentiment index is expected to inch up from July (11.2) to a new decade high, probably consistent with another quarter of GDP growth of 0.6 percent q/q in Q3. That solid growth picture should give the ECB greater confidence in the inflation outlook from 2019 on. In the bond markets, Italy will sell 5-year and 10-year bonds.

Meanwhile, the German DAX fell 0.06 percent to 12,219.00 by 09:10 GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained neutral at 56.08 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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