BUDAPEST/BUCHAREST: Hungary's 10-year government bond yield hit 13-month highs on Tuesday as higher than expected inflation data across Central Europe sparked worries over the country's loose monetary policy.
The yield has risen more than 20 basis points in the past three sessions, and hitting a 13-month high at 3.31 percent it traded above Poland's 3.25 percent. In January it was more than a percentage point below its Polish peer.
The Hungarian central bank (NBH) has pledged to keep its short-term base rate at record lows for years and long-term yields also relatively low.
But a rally of the dollar and US Treasury yields has boosted Hungary's 10-year yield in the past two months, knocking the forint to its weakest level against the euro and the Polish zloty in almost two years.
A rise in inflation in Central Europe in May -- and the risk that US and euro zone rate setters will send a hawkish message from their meetings this week -- raised question marks over the NBH's policy intentions.
"The central bank has been able to guide market expectations well for years ... Amid much more messy conditions, it is hard to see into their thinking now," one Budapest-based trader said.
Rumours about comments made by a senior rate setter to investors at closed meetings in London and Budapest did not alleviate a feeling of confusion, traders said.
"I am a bit tired of this (confusing rumours), frankly," another trader said. "People will look at the bank's statement next week (after its Tuesday meeting) with a magnifying glass."
The Hungarian central bank declined to comment in response to Reuters' questions.
While bond yields rose, the forint rebounded sharply from Monday's plunge against its most liquid regional peer, the zloty..
It firmed half a percent against the euro to 319.8 by 1409 GMT, while the zloty shed 0.1 percent.
One dealer said the firmer forint could reflect expectations that the NBH might tighten policy sooner than expected.
The Czech crown was flat after figures released on Monday showed a rise in Czech annual inflation to 2.2 percent in May, above the central bank's 2 percent target, boosting the chances that it will increase interest rates further as early as August.
Romania on Tuesday reported a rise in annual inflation in May to a five-year high of 5.4 percent, above forecasts. Serbia's inflation picked up to 2.1 percent from 1.1 percent in April.
The Czech central bank capped mortgage loans at nine times borrowers annual salaries on Tuesday.
Shares in Moneta Money Bank and Komercni Banka eased slightly, but the impact was mild as some investors had expected even tougher measures from the central bank to prevent the build-up of a lending bubble.
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