German bunds rise modestly on weak risk appetite

The German bunds were trading modestly firmer on Wednesday as investors pour into safe-haven assets amid losses in riskier assets including stocks and oil. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 1bp to 0.110 pct and the yield on the 2-year fell 1bp to -0.510 pct by 0835 GMT.

The German bonds have been closely following developments in oil markets because of their impact on inflation and equities expectations. Today, the crude oil prices dipped as Canadian oil sand production was expected to gradually ramp up following forced closures due to wildfires, and as record crude inventories especially in the United States put pressure on markets. Industry group American Petroleum Institute (API) said on Tuesday that U.S. crude inventories rose by 3.45 million barrels to a record 543.1 million barrels during the week ended May 6. The International benchmark Brent futures fell 1.21 pct to $44.95 and West Texas Intermediate (WTI) tumbled 1.39 pct to $ 44.04 by 0835 GMT.

The German industrial production tumbled 1.3 pct m/m in March, against markets expectation of 0.2 pct fall, from down 0.7 pct (previous revised down from 0.5). On the contrary, economic ministry said that Q1 overall industry output rises 1.8 pct due to strong hikes in construction and capital goods. He further added that industry has overcome weak phase of H2 2015 and economic trend in the sector pointing upward. On the other hand, Germany trade surplus widened to EUR 26 billion, against market consensus of EUR 20.6 billion, from EUR 20.2 billion (previous revised down from EUR 20.3 billion). In addition, exports rose 1.9 pct m/m, estimates were for zero growth, from prior 1.35 pct and imports fell 2.3 pct m/m , consensus was for 0.3 fall, from up 0.1% (previous revised down from +0.4 pct). Yesterday, the 10-year German yield has dropped to 0.108 pct (the lowest level since April).

The markets will now focus on the April CPI and Q1 GDP on Friday (0600 GMT). Meanwhile, the German stock index DAX Index fell 0.66 pct at 9,979 on tumbling crude prices by 0835 GMT.