German bunds move towards zero ahead of Fed meeting, Brexit angst

The German bunds continued to rally Friday, pushing the yield on 10-year bunds to an all time low of 0.025 percent as investors remained wary ahead of potentially seismic events this month including Britain’s referendum and the Federal Reserve meeting. Also, weak crude oil prices shifted investors’ interest towards fixed income securities.

Meanwhile, the yield on the benchmark 10-year bonds, which moves inversely to its price fell 1 basis point to 0.029 percent by 09:35 GMT.

In Europe and the US there are no major data releases today leaving traders to expect a continued quiet trading day ahead.

German final HICP for May came in as expected at +0.4 percent m/m, flat y/y. Additionally, wholesale prices rose by 0.9 percent m/m, down 2.3 percent y/y, as compared to +0.3 percent and -2.7 percent respectively in April.

On Thursday, ECB President Draghi said that a committed central bank can always fulfil its mandate, but if other policies are not aligned with monetary policy, inflation may return to its objective at a slower pace This means that the ECB is clearly once again calling for governmental action on supportive fiscal policies and pro-growth structural reforms, but this will tend to fall on deaf ears in European capitals.

The recent polls showed the outcome of the referendum is too close to call, raising the possibility that Britain might leave the EU after 43 years of membership in the bloc. A new UK-EU poll by ORB for the Telegraph, among people saying they will definitely vote in the referendum on the 23rd, 48 percent said they will vote to remain and 47 percent to leave the union. Yesterday, the WTO director general Azevedo said that the UK business competitiveness will be badly hit if the country votes to leave the EU. He adds that although trade will continue, it could be on worse/costlier terms.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, crude oil prices fell on a stronger dollar, after jumping beyond $51 mark on Thursday. The International benchmark Brent futures fell 0.83 percent to $51.52 and West Texas Intermediate (WTI) dipped 1.03 percent to $50.04 by 07:30 GMT.

Looking ahead, Bank of Japan Governor Haruhiko Kuroda will make a decision on stimulus on June 16 and the Federal Open Market Committee (FOMC) gathering scheduled for June 14-15. The U.K. decision on whether to remain in the European Union on June 23 is also weighing on investors’ minds.

Meanwhile, the German stock index DAX Index down 1.89 percent at 9,897 by 9:35 GMT.