German government bonds are sharply higher Wednesday, amid risk-off following weaker than expected German final services PMI data and also strong demand at the 5-year Bobl auction. However, volumes were light as US markets are closed in observance of US Independence Day holiday. Sep Bund futures opened little changed and then edged higher with demand underpinned by strong reinvestment flows from Germany, which includes redemption of the 5.00% July Bund for E27.0bln that is scheduled for today, with coupon payments for E12.7bln. Prices then squeezed higher following release of much weaker than expected German services PMI data, which fell to 49.9 in June versus flash estimate of 50.3 and 50.3 in May. German composite PMI also came in weak at 48.1 in June versus flash estimate of 48.5. Traders reported stop-loss buying in Sep Bunds – around 6.5k contracts bought on break above 142.02, according to sources. Bunds also gained after strong demand at German 5-year Bobl re-opening auction, where E3.294bln was allotted at an average yield of 0.52% vs 0.41% previous sale and cover 2.7 vs 1.6 prev.
EasyForexNews Research Team