BUDAPEST/WARSAW: Central European government bond yields declined further on Friday, along with those of the United States and Germany, and also supported by relatively low supply at a Polish bond auction.
Bonds and currencies in the region are rebounding from multi-week lows after the US 10-year Treasury bill dipped below three percent on Thursday and the European Central Bank played down concerns over soft euro zone economic data.
The region’s main currencies firmed slightly on Friday.
Polish, Hungarian and Czech 5- and 10-year bond yields were down 2-3 basis points. The Polish 10-year paper traded at 3.02 percent, and its Hungarian peer at 2.52 percent.
Poland sold bonds worth four billion zloty at an auction on Friday. The government cut the offer on Wednesday to four billion from a four to eight billion zloty range projected earlier.
Demand totalling 5.15 billion zloty was relatively weak, given the expiry of bonds worth 11.5 billion zloty on Thursday.
But the low supply helped keep yields low and sentiment was moderately positive, one Warsaw-based trader said.
Poland’s government budget deficit may rise, but not before next year, the trader said.
“As long as there is growth, the fiscal situation is not a problem,” the trader added.
Central European economies grow robustly, but inflation figures have been mild so far this year in most of the region.
Hungary’s last two bi-weekly bond auctions drew strong demand after its relatively low yields tracked US peers higher.
The government boosted its original offers, selling bonds worth more than 100 billion forints at both auction as it frontloads its 2018 issuance ahead of an expected rise in yields later this year.
Hungarian and Polish yields are seen tracking a likely global rise even though their central banks are not worried about inflation and have signalled that they may keep rates on hold for years.
Czech, and short-term Romanian debt yields also declined. Their central banks have started to increase their interest rates to defend their inflation targets.
But in Romania, where inflation surged to a 5-year high of five percent last month, most yields were steady or slightly higher.
Romania’s president Klaus Iohannis asked Prime Minister Viorica Dancila to resign on Friday after the government approved a secret memorandum to move the country’s embassy in Israel to Jerusalem and failed to consult the president on it.
While regional markets usually ignore politics, currencies and bonds could face pressure again if US yields resume their rise, market participants said.
The Czech central bank’s meeting next Thursday may pose additional risks to the crown as the comments from the meeting may point to a slower-than-expected further rise in interest rates, KBC group analysts said in a note.