The German bunds strengthened Wednesday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil.
The yield on the benchmark 10-year bond, which moves inversely to its price, fell 2 basis points to 0.33 percent, the long-term 30-year bond yield dipped 5 basis points to 1.09 percent and the yield on short-term 3-year bond slid 1 basis point to -0.75 percent by 10:00 GMT.
The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Crude oil prices declined as investors cashed in profits after U.S. inventories rose by 4.68 million barrels last week; the industry-funded American Petroleum Institute was said to report. The International benchmark Brent futures fell 1 percent to $55.19 and West Texas Intermediate (WTI) dipped 1.11 percent to $52.39 by 10:10 GMT.
On Tuesday, Germany's consumer inflation remained steady at 0.8 percent y/y in November, the same rate of increase as in the previous month. On a monthly basis, it stood flat at 0.1 percent m/m. Additionally, wholesale inflation rose 0.8 percent y/y, from previous 0.4 percent. On a monthly basis, it came 0.1 percent m/m, down from previous 0.4 percent.
Moreover, the European Central Bank in its last week’s final monetary policy decision of 2016 reduced the pace of its monthly bond-buying to 60 billion Euros from 80 billion, but extended the programme by nine months (April-October). The central bank reiterated that quantitative easing (QE) will run until inflation's path is in line with its goal. Also, noted that it may increase the size or duration if needed.
We would describe this tapering decision as more hawkish than the expected extension of the current pace of quantitative easing by 6 months.
Markets will remain focused on the Federal Reserve last monetary policy decision for 2016, which is scheduled to be released on December 14. The Federal Reserve is expected to increase the target range of the key interest rate by 25 basis points to 0.50-0.75 percent, with a unanimous decision. Little change to the statement, though the Committee is likely to acknowledge that market-based measures of inflation compensation have risen further.
Meanwhile, the German stock index DAX Index traded 0.23 percent lower at 11,259.75 by 10:20 GMT. While at 10:00 GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at +12.59 (higher than +75 represents a bullish trend).
