German bunds sag as business climate index hit highest since April 2014

The German bunds slumped Monday after recent economic data showed that the country’s December business climate index hit highest since April 2014.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose more than 1 basis point to 0.32 percent, the long-term 30-year bond yield also climbed 1 basis point to 1.06 percent and the yield on short-term 3-year bond bounced 1/2 basis point to -0.73 percent by 09:00 GMT.

We foresee that the bund prices will keep drifting between small gains and losses in quiet trading due to a long global Christmas holidays.

Germany's December IFO Business Climate index rose to 111.0, from 110.4 in November, outpacing expectations for a smaller increase to 110.6/7. The Current Conditions component improved the most - by one full point - while the expectations component rose by just 0.1 percentage points. This is the highest reading in the headline index since early 2014.

Additionally, the German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Crude oil prices jumped as investors expect tighter crude oil market in 2017. The International benchmark Brent futures rose 0.56 percent to $55.52 and West Texas Intermediate (WTI) climbed 0.64 percent to $52.23 by 09:10 GMT.

Moreover, the Federal Open Market Committee increased the fed funds rate to a 0.50-0.75 percent range last Wednesday, as widely expected. The statement noted that information received since the November meeting indicates that the labour market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.

Also, the new projections showed that the central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.

Lastly, markets will remain keen to focus on the upcoming economic data and events, highlighted by producer price index, ECB economic bulletin and GfK German consumer climate.

Meanwhile, the German stock index DAX Index traded 0.08 percent higher at 11,410 by 09:10 GMT. While at 09:00 GMT, the FxWirePro's Hourly Euro Strength Index stood neutral at -35.72 (lower than -75 represents a bearish trend).