German Bond Yield Finds Floor as Crude Oil Prices Plunge
The German 10-year bond yield steadied on Thursday, after plummeting sharply in the previous session following reports of US attacks on Iran being halted. The yield hovered around the low 3.1% range as of 4:00 p.m. UK time, roughly unchanged from Wednesday's closing price. However, buying interest in German long-term bonds increased as crude oil prices fell to a two-week low.
The Brent crude oil futures contract for September delivery dropped below $83 per barrel at one point during the day's trading, spurring concerns about inflation and, by extension, potential interest rate increases. But with receding inflation worries, bond buying has become more attractive.
Market attention remains focused on the summit meeting between US President Trump and Israeli Prime Minister Netanyahu at the White House. While Middle East geopolitical risks could resurface depending on the outcome of the talks, the prevailing view is that 'excessive caution has receded for the time being.' This perception has fueled selling in crude oil futures, which in turn is supporting the bond market.
On Wednesday, the 10-year German bond yield fell by 0.06 percentage points due to the sharp decline in crude oil prices. The UK government bond market also benefited from the drop in oil prices, with the UK 10-year bond yield trading at around 4.9% on Thursday, about 0.01 percentage points lower than Wednesday's closing price.