LONDON Nov 25 German Bunds inched higher on
Monday as the prospect of lower oil prices following a deal to
curb the Iranian nuclear programme highlighted the subdued
inflationary pressures in the euro zone.
The deal with six world powers gives Iran some relief from
crippling sanctions and is considered a big step towards a more
While Iran will not be allowed to increase oil sales for six
months, the easing Middle East tensions led to lower crude
prices, which - if sustained - could increase spending power
globally and boost economic growth.
But Bund futures, which usually fall on prospects
for better economic growth as investors switch into riskier,
higher-yielding assets, rose 5 ticks to 141.00 on Monday, even
as European shares rose.
This could be a sign that investors in the euro zone focused
more on the disinflationary pressures the Iran deal has caused,
rather than on the growth outlook, analysts said.
A surprise fall in the annual inflation for October to 0.7
percent, well below a target of just below 2 percent, prompted
the European Central Bank to cut rates this month and increased
speculation of further monetary policy easing.
"This is another disinflationary influence," one trader
said. "Is it a boost for growth? Maybe. But my first reaction is
on the inflation side."
ECB Governing Council member Christian Noyer said on Monday
that interest rates have to remain low for an extended period
and might go even lower if needed as officials try to ensure the
euro zone does not fall into deflation.
Inflation data for November is due on Friday.
German 10-year yields fell 0.6 basis points to
1.747 percent. The fall in yields came against upward pressure
ahead of a sale of up to 4 billion euros of 10-year German debt
"Having lower oil prices should be a boost for growth," ING
rate strategist Alessandro Giansanti said. "But on Bunds the
impact should be very limited as they are very sensitive to
action from central banks."
"The current trend is for a decline in inflation so the
focus will be on what will happen in terms of intervention from
the ECB," he said.
Uncertainty about the ECB outlook and about timing of any
move by the Federal Reserve to reduce bond-buying stimulus was
likely to keep Bunds in tight ranges in coming days.