BUDAPEST: Hungarian long-term government bonds traded at record low yields on Thursday ahead of their first auction since the central bank (NBH) announced measures to push the yields lower.
The decline bucked a rise in government debt yields in the euro zone, which crept up ahead of the release of minutes from the European Central Bank's October meeting.
Elsewhere in Central Europe, Polish bond yields eased slightly as the country's central bank also prepared to publish the minutes of its last meeting later on Thursday.
Hungarian bond yields dropped 1-3 basis points after a steep decline in recent weeks amid expectations that the NBH would take measures to flatten the yield curve and encourage mortgage lending.
The NBH, one of the most dovish central banks in the world, announced on Tuesday that it would launch a big interest rate swap programme from January to push long-term yield lower, and also a mortgage note buying scheme.
The government is due to sell 55 billion forints worth of 3-, 5- and 10-year bonds at its bi-weekly tender on Thursday.
Five-year bonds traded at a yield of 1.07 percent ahead of the primary sale, which is expected to draw robust demand, mainly in the longer maturities. The 10-year benchmark bond traded at 2.09 percent.
"The yields could drop even further from the current record lows at the auction," one Budapest-based fixed income trader said.
"Later, yields could go even lower, but I do not think that there is room for a decline of more than 10-15 basis points," the dealer added.
"After all, the actual measures will come only next year and we will need to see them."
One currency dealer said the fall in yields may undermine the forint's position in its crosses with regional peers, the zloty and the crown.
Regional economies grow robustly, and Poland's latest strong wage and industrial output data have triggered some expectations that the central bank there may start to raise interest rates sooner than late next year.
Diverging expectations with the forint pushed the zloty on Wednesday to seven-month highs against the Hungarian currency .
But a dollar sell-off late on Wednesday strengthened both currencies against the euro, and they retreated in tandem when European markets reopened, shedding 0.1 percent.
Elsewhere, the leu was a shade weaker near record lows ahead of a no-confidence vote in Romania's parliament. The motion is likely to fail, but political uncertainty remains high, while a surge in wages has stoked up inflation.
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