BUDAPEST: Central European assets rose on Thursday and government bond auctions in the region attracted strong demand after the Federal Reserve pushed back expectations for its first rate rise in almost a decade.
Higher US rates would make the assets of Europe's emerging markets less attractive and the risk of a US rate hike in June had caused wobbles in the region's markets in the past two weeks.
Offsetting that, Central European assets have been buoyed by the European Central Bank's bond-buying programme, its relatively high bond yields, and the fact that the region is growing faster than the euro zone.
The region's most volatile currency, the Hungarian forint , touched a 14-month high against the euro at 301.25, and at 1329 GMT it traded half a percent firmer from Wednesday at 302.80.
Romania's leu hit six-week highs and traded at 4.42 against the euro, up 0.7 percent.
Both countries sold government bonds at auctions on Thursday at yields below secondary market levels which were already down from Wednesday.
Hungary offered 3-, 5- and 10-year papers with the longest maturity drawing the strongest demand.
The debt agency AKK sold 24.4 billion forints ($85.9 million) worth of the 10-year bonds, twice the original offer but still less than a third of bids.
The bonds traded at a yield of 3.3 percent after the auctions, down 27 basis points.
"Investors are optimistic after the Fed ... the (10-year) 2025/B (series) yields still has room to come down by 20-30 basis points," one Budapest-based fixed income trader said.
The Polish yield curve became slightly less steep, with the 10-year benchmark yield dropping 11 basis points to 2.30 percent while the two-year yield dipped just 3 basis points to 1.57 percent.
Hungary's central bank is expected to cut its 2.1 percent base rate by 10-20 basis points, or even as much as 30 basis points, when it meets on Tuesday, according to a Reuters poll.
"After the Fed meeting, a bigger rate cut is more likely," one Budapest-based fixed income trader said.
The Czech crown, the region's low-yielding safe- haven unit, bucked the trend and eased 0.3 percent against the euro to 27.42. It has strengthened this year to near the central bank's (CNB) effective cap at 27 per euro, and investors are now becoming nervous.
"Although we think that markets might start to test the CNB's intervention floor ... in the not so distant future, the attack should be expected to come only after next weeks CNB Board meeting (on March 26)," KBC said in a note.
In the region's stock markets, Budapest led gains.
Its main index rose 1.9 percent as the stocks of the country's biggest bank, OTP surged more than 4 percent to 4,860 forints after JP Morgan raised its price target for OTP to 6,950 forints.
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