BUDAPEST: Poland's 10-year government bond yield fell to a seven-month low as investors expected little debt supply and low inflation in coming months, despite strong manufacturing indexes from Warsaw, Prague and Budapest.
The Polish central bank is not expected to shift to a more hawkish policy, which would weigh on bond prices, as robust economic growth has not yet raised widespread concerns over inflation in Poland, unlike for other central banks in the region.
Poland's statistical office said the government's budget deficit fell to 1.5 percent of economic output in 2017 from 2.3 percent in 2016. Its debt shrank to 50.6 percent from 54.2 percent of GDP.
Budget figures for January and February showed a surplus and the finance ministry has reduced the supply of government bond issues planned for the second quarter of the year.
The yield on Poland's 10-year bond traded below 3.16 percent, down 10 basis points from the last close on March 29. Its Hungarian equivalent was flat at 2.45 percent.
Poland's bond supply will be limited, "with still-high demand from banks and non-bank financial institutions, and a large inflow of cash to the market - more than 15 billion zlotys from treasury bond redemptions and coupon payments," BZ WBK said in a note.
While Hungarian and some Polish central bankers do not expect a rise in record-low interest rates, or a big rise in inflation, for years, Romania's central bank is expected on Wednesday to deliver its third interest rate hike this year as it fights a surge in inflation boosted by surging net wages.
The Czech central bank is also expected to continue to tighten interest rates later this year.
March PMI manufacturing activity figures from the region confirmed on Tuesday that regional economies continue to expand.
Regional currencies were steady or firmed marginally as global sentiment towards risk was fragile, also reflected by mixed movements in regional equities.
The Czech crown traded at 25.359 against the euro, off a 1-1/2 month high of 25.295 touched in early trade.
Budapest's main stock index rose 0.4 percent after an initial fall. Hungarian government bonds were little changed in thin trade, five days ahead of parliamentary elections.
"Markets price in that there will be no government change and the government will get more than 50 percent (of parliament seats)," one Budapest-based fixed-income trader said.
Opinion polls show a lead for Prime Minister Viktor Orban's conservative Fidesz party, but the fractured opposition could win in many constituencies if its voters choose the strongest challenger to the government candidate, increasing uncertainty over the outcome of the election.
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