German bunds slump on BoJ’s disappointing policy decision, profit booking

The German bunds slumped on Friday after the Bank of Japan left its policy rate unchanged, which disappointed investors who were anticipating a higher policy easing. Also, marginal investors cashed in profit on the last day of the week.

The yield on the benchmark 10-year bond rose 1-1/2 basis point to -0.067 percent, the yield on long-term 30-year note climbed 1 basis point to 0.385 percent and the yield on short-term 3-year note jumped 1/2 basis point to -0.633 percent by 09:50 GMT.

The Bank of Japan in its monetary policy decision disappointed markets by keeping its key interest rate unchanged at prevailing minus 0.1 percent. Also, the central bank kept its base money target at 80 trillion yen as well as buying of Japanese bonds.

However, the BoJ announced to increase to increase ETF purchases at an annual pace of 6 trillion yen, up from the current 3.3 trillion yen. This decision was supported by 7-2 votes as board member Takahide Kiuchi and Takehiro Sato opposed the majority decision.

The central bank in its statement proposed to increase the size of the lending programme that provides dollar funding to Japanese financial institutions and conducts comprehensive assessment of effects of QQE with negative rate policy at next rate review. They further added that the governor Haruhiko Kuroda as chairman of board instructed staff to prepare deliberations on assessment at BOJ's next meeting.

In terms of economic data release, preliminary German July HICP came in at +0.4 percent m/m (+0.4 percent y/y), against market expectations for 0.3 percent for both readings.

Meanwhile, the German stock index DAX Index trading 0.44 percent higher at 10,320 by 09:50 GMT.