German government bonds are trading higher Wednesday on weaker continental European stock bourses and following decent demand at the benchmark 2-year Schatz re-opening auction, albeit two-way flow. June Bund futures opened little changed and then squeezed higher on stop loss buying — circa 3k lots and extended gains on technical buying. However, prices then reversed lower in line with UK Gilts after hawkish comments from BoE MPC member Tucker, who warned that UK CPI remains “uncomfortably” above target. Further selling pressure was seen after sharp losses in Gilts post BOE minutes for the April meeting that showed MPC member Posen switching his vote to maintain QE at Stg325bln. June Bunds found support at yesterday’s low at 139.82 and squeezed higher earlier after earlier bid in Italy faded, amid talk of Italian domestic accounts selling 3-year part of the curve. Italy 10-year yield spread is trading 2bps tighter at +370bps vs +361bps earlier this morning. Bunds then squeezed higher after good German Schatz auction results and FTQ buying as Italian and Spanish banks traded lower.
EasyForexNews Research Team