German bunds jump despite formation of SPD-CDU coalition government; investors eye 5-year auction

The German bunds jumped during early European session Monday despite the formation of a coalition government between the Social Democrats and Chancellor Angela Merkel’s Conservative Party, ending the long-awaited political uncertainty.

Investors, now, shall be focussing on the country’s 5-year auction, scheduled to be held on March 7 for further direction in the debt market.

The German 10-year bond yields, which move inversely to its price, slumped 2 basis points to 0.62 percent, the yield on 30-year note plunged 2-1/2 basis points to 1.27 percent and the yield on short-term 2-year traded nearly 1-1/2 basis points lower at -0.55 percent by 09:35GMT.

Beyond the politics, the ECB meeting on Thursday will undoubtedly be the main euro area focus in the coming week.

"While the accounts of recent policy meetings flagged the possibility of a change in the first half of this year to the ECB’s forward policy guidance – including the removal of the easing bias on the net asset purchase programme (APP) – we are not counting on seeing that happen at this week’s meeting," Daiwa Capital Markets commented in its latest report.

The softer readings of the February economic surveys should have provided a warning against complacency on the Governing Council, all the more so given that GDP growth has not been quite as strong as recent confidence indices had suggested, while recent inflation data have remained disappointing. Indeed, with headline CPI in February at its lowest level since end-2016 and core CPI just 1.0 percent y/y, the ECB’s long-sought uptrend in underlying inflation remains elusive.

And further euro appreciation – which might result from a sudden change of policy guidance – could have an adverse impact on the economic outlook, the report added.

Meanwhile, the German DAX rose 0.15 percent to 11,930.84 by 09:35GMT, while at 09:00GMT, the FxWirePro's Hourly Euro Strength Index remained highly bearish at 124.38 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

Lastly, FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest