Eurozone bond yields inch up as flash CPI data looms
LONDON: Government bond yields in the euro area were just a touch higher ahead of the closely-followed monthly “flash” inflation estimate for the single currency bloc in April.
A slowdown in the euro zone economy’s solid growth momentum and subdued inflation could test the European Central Bank’s resolve to roll back its hefty stimulus scheme.
While the ECB is seen on track to end stimulus by the end of the year, further disappointments in inflation or economic data could prompt investors to scale back rate-hike bets.
Economists polled by Reuters forecast inflation in the bloc rose 1.3% rise in April from a year earlier, unchanged from March. The ECB targets inflation at close to 2%.
The ECB’s favoured core inflation measure, which strips out volatile energy and unprocessed food prices, is forecast to rise 1.2%. A another core gauge that also excludes alcohol and tobacco and is closely tracked by many economists, is estimated at 0.9%.
In early trade, most 10-year bond yields in the region were one to two basis points higher on the day. Sentiment was supported by an overnight fall in US bond yields after a quarterly refunding program came in short of expectations, while the US Federal Reserve left policy unchanged at a meeting.
“We expect the euro zone CPI (consumer price index) to deliver another blow to the odds of ECB tightening,” said Antoine Bouvet, a rates strategist at Mizuho.
“While the headline number is likely to turn out weaker than consensus, in light of the individual member states’ releases, we think the most potent market mover would be another disappointment in core inflation.” Consumer prices in Germany, Italy and Portugal grew less than expected in April, data showed on Monday. — Reuters