Bund Yield Dips As Oil Price Falls

German bond yields dipped on Wednesday as oil prices fell after Kuwaiti oil workers ended a strike and a sale of 10-year debt went smoothly.

Significant market moves were capped a day before a European Central Bank meeting, even though investors do not expect any new hints of easing following last month’s stimulus measures.

Germany sold about 3.2 billion euros of bonds in a top-up of its 0.50 percent 10-year Bund at an average yield of 0.15 percent, half the previous auction’s yield.

A bid-to-cover ratio of 1.4 suggested solid demand for Bunds even with yields at low levels, analysts said. The ECB’s asset purchases remained a key supporting factor at recent government bond sales.

On Tuesday, Italy sold 6.5 billion euros of new 20-year bonds.

“Bund auctions are usually an accident-prone event, but today there are no signs of any risks whatsoever and that’s certainly encouraging heading into the ECB meeting,” said David Schnautz, a Commerzbank interest rate strategist.

Germany’s 10-year Bund yield fell 2 basis points to 0.16 percent, within sight of the one-year low of 0.075 percent hit earlier this month. Other euro zone bond yields, with the exception of Portugal’s, were 1-2 bps lower.

Brent crude futures, the international benchmark, fell 1.5 percent to $43.35 a barrel. Oil prices, which have slid more than 60 percent since mid-2014, have pushed down inflation expectations in the euro zone and in turn depressed bond yields.

“Oil has come down $1 and that’s why yields are lower across the board,” said DZ Bank strategist Daniel Lenz.

A euro zone bank lending survey also refocused market attention on Thursday’s ECB meeting.

The ECB’s asset-purchase programme is hurting bank profits while its contribution to easing lending conditions is small or diminishing, according to an ECB survey of lenders released on Tuesday.

“Given the results of the bank lending survey, the ECB will stress that they think their measures are working and will stand ready to act again if needed,” Lenz said.

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Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell