German 10-year bond yield touches zero mark amid Brexit optimism and trade talks

Germany's benchmark 10-year bond yield was around zero per cent on Thursday, as more signs of weakness in Europe's biggest economy offset optimism about U.S.-China trade talks and a softer Brexit.

After notching up the biggest monthly declines in almost three years in March, German Bund yields rose at the start of April as global economic data improved and discussions between the world's two biggest economies on trade appeared to be making headway. Thursday saw a note of caution return. German industrial orders fell unexpectedly in February, registering their biggest drop in more than two years, data showed.

That followed news that leading German economic institutes has lowered their 2019 growth forecast to 0.8 per cent from 1.9 per cent previously. Germany's 10-year Bund yield was trading around zero per cent, flat on the day. It jumped five basis points the day before in its biggest one-day rise since mid-January.

"We had argued that negative 10-year Bund yields could only be rationalised by extreme angst," said Benjamin Schroeder, ING's senior rates strategist. "Some of that angst has been lifted over the course of the past few days by a slew of positive headlines leaving the 10-year Bund yield around zero again." In addition to optimism about U.S.-China trade negotiations, hopes of a softer British exit from the European Union have weakened the appeal of safe-haven assets.

The lower house of the British parliament on Wednesday approved legislation which would force Prime Minister Theresa May to seek a Brexit delay to prevent a disorderly departure on April 12 without a deal. "Markets are reacting more to the more positive news on Brexit, and if we do see some conclusion here that would be bearish for bond yields," said Pooja Kumra, European rates strategist at TD Securities in London. "But we are in the mixed ground because we have poor data and the focus on Brexit."

There was also some focus on the release later of the minutes from the European Central Bank's March meeting -- especially for details on the ECB's plans to issue new cheap loans to banks and debate about tiering interest rates. Most euro zone bond yields were little changed. Greek 10-year bond yields touched a one-month low at 3.646 per cent amid optimism about a new bond sale in coming months and talk of an International Monetary Fund loan repayment.

(With inputs from agencies.)