German bunds gain ahead of 30-year auction, eurozone’s consumer price inflation

The German bunds gained Monday as investors await the country’s 30year auction, scheduled to be held on January 17 by 10:40GMT. Also, of prime importance is eurozone’s consumer price inflation (CPI), due to be released on the same day by 10:00GMT, which will add further direction to the debt market.

The German 10-year bond yields, which move inversely to its price, slumped 2 basis points to 0.50 percent, the yield on 30-year note slid 1 basis point to 1.32 percent and the yield on short-term 2-year traded nearly 1-1/2 basis points lower at -0.57 percent by 08:35GMT.

In the coming week, the most notable new data will be the final euro area inflation figures for December, due Wednesday. These appear a touch more interesting than might have been the case after Friday’s French and Spanish figures showed downward revisions to the flash estimates, from 1.3 percent y/y to 1.2 percent y/y in both countries.

This strongly suggests that a similar downward revision to the euro area headline rate from the preliminary estimate of 1.4 percent y/y, which represented a 0.1ppt decline from November, is perfectly feasible. A downwards revision to the initial core CPI estimate of 0.9 percent y/y, however, seems less likely. The final Italian and German inflation estimates, due tomorrow, will also be closely watched.

Other euro area economic data releases this week include December new car registration and November construction output data (also Wednesday), and the balance of payments for November (Friday). Today’s trade figures are expected to show a rebound in the surplus to more than EUR22 billion after a significant decline to EUR19 billion in October.  Politics-wise, all eyes will be on Germany’s centre-left SPD to gauge the likely outcome of Sunday’s key special convention vote on the preliminary coalition agreement – the expectation is that the deal will be endorsed, to allow formal coalition negotiations to start, although this is by no means a done deal.

Meanwhile, the German DAX fell 0.16 percent to 13,224.50 by 08:40 GMT, while at 08:00GMT, the FxWirePro's Hourly Euro Strength Index remained slightly bullish at 92.81 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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