German bunds gain after July Ifo business climate slips; ECB’s policy meeting eyed

The German bunds gained during European session Thursday after the country’s Ifo business climate index slipped during the month of July, as investors keep a close eye on the European Central Bank’s (ECB) monetary policy meeting, due to be held today by 11:45GMT for further direction in the debt market.

The German 10-year bond yields, which move inversely to its price, slipped 1 basis point to -0.388 percent, the yield on 30-year note also edged 1 basis point lower to 0.198 percent while the yield on short-term 2-year traded flat at -0.782 percent by 10:15GMT.

According to a report from Reuters, citing Ifo economist Klaus Wohlrabe, "German industry faces turbulent times ahead,” Wohlrabe said. “Recession is spreading across all important sectors of German industry ... Business sentiment deteriorated in key sectors except the auto industry (in July)."

All eyes today, of course, will be on the ECB’s policy decision. Despite yesterday’s disappointing PMIs, we expect no substantive policy adjustment today but rather a clear signal that further easing is on its way, probably in September, Daiwa Capital Markets reported.

Certainly, recent comments from Governing Council members have left it uncertain whether they judge that the preconditions for easing policy this month have been met. Indeed, economic data – from the euro area and certain other major economies – have been mixed and difficult to interpret with confidence, the report added.

"And as last month’s forward guidance did not explicitly flag the near-term possibility of a rate cut, we think the policymakers will want to wait for September before deciding what to do. Assuming they wait until then, they would also be able to calibrate precisely their policy response with updated economic forecasts that better reflect recent events," Daiwa further commented in the report.

Meanwhile, the German DAX traded flat at 12,513.94 by 10:20GMT.