LONDON, (Reuters) – Borrowing costs in the euro area were flat to a touch higher on yesterday ahead of the first estimate of March inflation in the bloc, a key release for markets as the European Central Bank looks to wind down its massive monetary stimulus.
New bond supply later in the day from Germany, which is scheduled to sell 3 billion euros of five-year bonds, put some upward pressure on bond yields although trade remained relatively subdued in a holiday-shortened week.
The “flash” estimate of euro zone inflation will be released at 0900 GMT and is forecast to have risen to 1.4 percent in March from 1.1 percent in February.
An earlier Easter this year, pushing up prices of package holidays and accommodation in March, cold weather driving up fruit and vegetable prices, and a steeper year-on-year increase in energy costs are all expected to contribute to the inflation pick-up.
Even if inflation remains short of the ECB’s target of near 2 percent, its policymakers are now debating whether to end the central bank’s 2.55 trillion euro asset purchase scheme.
“The cost of living in the currency bloc has been relatively weak, and the report is likely to give the market an indication of what the future policy of the ECB will be,” said David Madden, market analyst at CMC Markets.
“The ECB have a bond buying scheme in place until September, and dealers will taking the cues from the CPI data.”
In early trade, yields on 10-year bonds in the single-currency bloc were up to 2 basis points higher on the day.
