Germany's Bund yield drops to lowest since May on safe-haven flows

LONDON/GDANSK, June 12 (Reuters) - Germany's 10-year yield dropped to a near six-week low on Thursday as bonds benefitted from safe-haven flows on market jitters about trade and tensions in the Middle East, a day after soft U.S. inflation numbers.

Germany's 10-year Bund yield, the benchmark for the euro zone, was nearly 5 basis points lower at 2.486%, paring some declines after dipping to its lowest since early May at 2.469%. DE10YT=RR.

Yields around the world dropped on Wednesday after data showed U.S. consumer prices increased less than expected in May helped by cheaper petrol, and as healthy appetite at an auction of U.S. Treasuries further improved sentiment. US/

Supporting the bond rally into Thursday was a global risk-off tone after U.S. President Donald Trump said the United States would send out letters in one to two weeks outlining the terms of trade deals to dozens of countries, which they could embrace or reject.

Separately, Trump said U.S. personnel were being moved out of the Middle East because "it could be a dangerous place".

Safe haven currencies like the Japanese yen and Swiss franc also rallied and stocks fell. MKTS/GLOB

While U.S. Treasury yields extended their fall after U.S. producer price and weekly jobless claims data on Thursday, and were on track for a fourth straight day of declines, the print hardly saw any reaction in euro zone bonds.

U.S. government data on Thursday showed producer prices rose 2.6% in May from a year earlier, in line with economists' expectations.

"While the combination of the CPI and PPI releases does not suggest any material upside to inflation last month, we suspect Fed officials will remain cautious and on guard against the risk for future tariff pass-through into higher consumer prices," analysts at J.P. Morgan wrote in a note to clients.

"We continue to look for such an increase in consumer prices to peak during the summer months."

Back in Europe, eyes were on European Central Bank speakers as investors tried to ascertain whether last week's interest rate cut was the last in the current cycle, despite the ECB forecasting that inflation would fall meaningfully below its 2% target next year.

ECB's Executive Board Member Isabel Schnabel said on Thursday that interest rates were in a "good place" because inflation is likely to return to target in the medium term.

However, Lithuanian policymaker Gediminas Simkus said interest rates may need to come down further this year because of the undershoot risk.

Markets are currently pricing in one more rate cut this year EURESTECBM4X5=ICAP, 0#EURIRPR.

Other euro zone bonds largely moved in line with the benchmark. Italy's 10-year yield was down 4 bps at 3.42%. IT10YT=RR

Germany's interest rate sensitive two-year yield was down 3 bps at 1.82%. DE2YT=RR