German bunds gain as crude oil prices dip

The German bunds gained on Monday as oil prices declined for a 4th day, which pushed investors’ inflation expectations lower and supported demand for fixed-income assets. The yield on the benchmark 10-year bunds, which moves inversely to its price fell 3bps to 0.147 pct by 0925 GMT.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices fell more than 1 pct on firm global supply, a stronger dollar and surging output from Iran to Europe and Asia. Moreover, Iranian deputy oil minister quoted that Iran plans to increase oil export capacity to 2.2 million barrels by the summer and has no plans to freeze its level of oil production and export. The International benchmark Brent futures fell 1.05 pct to $48.22 and West Texas Intermediate (WTI) dipped 1.08 pct to $48.68 by 0900 GMT.

On the other hand, investors did not react to the firm May manufacturing PMI figure, which increased to 52.4, above the market expectations for 52, also up from 51.8 in April. Similarly, the service PMI rose 55.2, higher than the consensus of 54.5, from 54.5 in April, while the composite reading also came in higher at 54.7, against market expectation of 53.8 print, as compared to 53.6 in April.

The markets will now focus on Q1 Gross Domestic Product (GDP) on Tuesday (0600 GMT). Meanwhile, the German stock index DAX Index dipped 0.10 pct at 9,906.50 by 0925 GMT on absorbing weak cues emerging from crude oil futures.