BUDAPEST/PRAGUE: Central European government debt yields mostly rose on Thursday after Fed signals of continuing US rate hikes and Czech central bankers played down speculation they would rush to end the crown cap.
Fed rate hikes make bonds in the region relatively less appealing.
"The mood is a bit negative as the new US president will swear in soon and we have already seen that his comments can move the dollar," one Budapest-based dealer said to explain a 0.2 percent slide of the forint and the zloty against the euro.
Robust demand at Hungary's bond auctions , however, showed that the region's high yields and healthy fundamentals are still attractive.
The government sold bonds worth over 70 billion forints ($241.05 million), compared with its 45 billion forint original offer.
Yields rose from auctions held two weeks ago, but were lower from secondary market levels. The 5-year bonds drew robust demand.
But 10-year bonds were also well oversubscribed, even though a rebound of inflation in the region - and a reluctance of central banks to tighten policy in reaction - have weighed on long-term bonds.
The 10-year paper was sold at an average yield of 3.43 percent, down 2 basis points from secondary market trade. Poland's corresponding yield rose 3 basis points to 3.648 percent.
"Some bank books heavily bought into the benchmarks," one Budapest-based fixed income trader said.
Romania sold the planned amount of 4-year bonds at its auction, at an average yield of 2.54 percent, above Wednesday's 2.5 percent closing bid.
Czechs sold 36-week Treasury bills at a deeply negative yield of -1.6 percent. Czech bond yields rose, with the yield on the 2-year paper jumping 15 basis points to -0.966 percent.
Czech central bankers have sought to temper speculation that the bank could before the second quarter abandon the cap that keeps the crown weaker than 27 against the euro, and let the currency surge.
Vice-Governor Mojmir Hampl was quoted as saying that the most likely moment for exit was still mid-2017 but he could not rule it out in the second half of the year.
Board member Lubomir Lizal warned on Wednesday that the currency had become "completely overbought".
"There was lower demand (at the auction). We see internationals selling bonds yesterday and today after a few months of buying," one Prague-based trader said.
Some investors might be re-thinking crown positions after warnings it might not gain immediately after exit from its cap, but there has not yet been any major shift in markets, the trader added.
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