22.06.201605:07:00UTC+00German Bonds Trade Flat As Investors Eye Brexit Results

The German bunds were little changed during a relatively quiet session on Wednesday as investors await the Brexit vote on Thursday. Also, we expect it to trade in a range bound ahead of the referendum outcome.

The yield on the benchmark 10-year bonds, which moves inversely to its price hovered around 0.05 percent mark, yield on super-long 30-year bonds rose 1/2 basis point to 0.647 percent and the yield on short-term 2-year note also remained steady at -0.583 percent by 09:00 GMT.

Two opinion polls on Monday showed that the “Remain” camp has recovered some ground in Britain’s European Union referendum debate.

According to the NatCen poll results on the United Kingdom referendum campaign, 53 percent would vote to 'Remain' in the European Union, while, 47 percent would vote to 'Leave'. Similarly, the ORB/Daily Telegraph poll results on the United Kingdom referendum campaign, 53 percent would vote to 'Remain' in the European Union, while, 46 percent would vote to 'Leave'.

On the other hand, a new UK poll by Survation for IG group shows 45 percent favour remaining in the EU vs 44 percent for remaining. This slim +1 percent pro-EU balance is down from 3 percent in the organisation's last survey published on Monday.

The implied probability of a 'Remain' vote in Thursday's EU referendum in the UK has softened a shade to 77 percent according to the latest Betfair odds, down from Monday's recent high at 78 percent.

In US Fed Chair Yellen prepared testimony before the Senate Banking Committee, Yellen said since her last semi-annual testimony before Congress, the economy has made further progress toward the Fed's objective of maximum employment. And while inflation has continued to run below our 2 percent objective, the FOMC expects inflation to rise to that level over the medium-term.

However, the pace of improvement in the labour market appears to have slowed more recently, suggesting that our cautious approach to adjusting monetary policy remains appropriate. Yellen added that proceeding cautiously in raising the federal funds rate will allow the Fed to keep monetary support to economic growth in place while the Fed assesses whether growth is returning to a moderate pace, whether the labour market will strengthen further, and whether inflation will continue to make progress toward the Fed's 2 percent objective.

On Tuesday, the German constitutional court, while saying it is bound by the European Court of Justice's ruling approving the ECB's OMT programme, an emergency bond market-support plan that has never been activated, set six conditions for German participation.

Also, these include that the volume of purchases must be limited in advance, the bonds would generally not be held until maturity, and bond purchases must be from states that have financial market access. We see that the latter condition would seem to nearly defeat the purpose of the programme. The Bundestag and German government would also need to monitor volumes and the risk structure of bonds to avert any 'concrete risk' to the German budget.

In addition, the German bunds have been closely following developments in oil markets because of their impact on inflation expectations. Today, oil prices rose in early Asian trading on Wednesday, with U.S. crude joining Brent above $50 a barrel after data from the American Petroleum Institute (API) showed a larger than expected draw on stocks. U.S. crude inventories fell by 5.2 million barrels for the week ended June 17, the API said. The trade group's figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll. The International benchmark Brent futures rose 0.71 percent to $50.98 and West Texas Intermediate (WTI) climbed 0.82 percent to $50.26 by 09:00 GMT.

Meanwhile, the German stock index DAX Index rose 0.40 percent at 10,055.50 by 09:00 GMT.