German bunds slump on profit taking; investors eye U.S. presidential election

The German bunds slumped Thursday as investors cashed in profit after relishing the previous rally. Also, recovery in energy prices drove out traders from safe-haven buying.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 2-1/2 basis points to 0.155 percent, the yield on long-term 30-year note climbed 3 basis points to 0.777 percent and the yield on short-term 2-year bond bounced nearly 1 basis point to -0.626 percent by 09:30 GMT.

The U.S. presidential election is due on November 8 in which the race between Democrat candidate Hillary Clinton and Republican Donald Trump is narrowing. The market is wary of a Brexit-like outcome at the presidential election on November 8 as recent polls showed a tighter race between the two Presidential candidates.

The RealClearPolitics poll displayed that Democratic nominee Hillary Clinton’s lead over her Republican rival Trump has narrowed down to 2.2 percentage points from more than 7 points two weeks ago.

Treasury prices are expected to rally this week as investors assume that the triumph of Republican Party nominee Donald Trump over Democratic Clinton will weaken the greenback against major trading currencies, while boosting demand for safe-haven assets.

Moreover, the Federal Reserve left policy rates on hold at the Federal Open Market Committee (FOMC) meeting that concluded Wednesday, flagging possibilities of a December rate hike. The central bank will continue to monitor the developments in consumer prices and the country’s labour market.

The FOMC, chaired by Janet Yellen held the Federal Funds Rate unchanged, by a majority 8-2 vote in the range of 0.2-0.50 percent since last December, largely in line with markets had initially anticipated. However, there were two dissenting votes by George and Mester, each in favour of a hike to 0.50-0.75 percent.

The German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Crude oil futures recovered after an attack on a Nigerian oil pipeline and were also supported by weaker U.S. dollar. The International benchmark Brent futures rose 0.62 percent to $47.13 and West Texas Intermediate (WTI) climbed 0.40 percent to $45.52 by 09:30 GMT.

Meanwhile, the German stock index DAX Index traded 0.01 percent higher at 10,370 by 09:30 GMT.