BUDAPEST: Hungary sold more bonds than planned at its auction on Thursday and Central European debt rallied as diplomatic efforts to cool the crisis in Ukraine supported riskier assets.
Most regional currencies and stocks also continued to recover from jitters caused by the situation in neighbouring Ukraine, the second hit to the region this year from developments in other emerging economies.
"Near-term price action remains largely a function of the uncertain geopolitical outlook," Raiffeisen said in a note, adding that sentiment was also improved by Wednesday's data confirming an economic pick-up in Hungary and Romania.
European Union leaders were set to warn but not sanction Russia on Thursday over its intervention in Ukraine, after Moscow rebuffed a diplomatic push to its pull forces in Crimea back to their bases. A vote by the Crimean parliament to leave Ukraine and join the Russian Federation had no immediate effect on Central European markets.
With war fears receding, Hungary's bond auction attracted healthy demand. It sold 68.5 billion forints worth of 3-, 5- and 10-year bonds, 11.5 billion more than planned.
The most sought 3-year bonds were sold at an average yield of 4.66 percent, down 10 basis points from Wednesday's secondary market levels and the lowest since January.
Traders said investors were scrambling to cover short positions built in the past weeks, betting for yield rises.
"Demand was particularly high for short-end bonds," one Budapest-based trader said. "Some people may buy based on increasingly dovish central bank comments, like in Poland, and the European Central bank may also loosen conditions somehow."
Polish bonds firmed slightly after a surge late on Wednesday triggered by a cut in the central bank's inflation forecasts and comments from the bank that the zloty could resist contagion effects from Ukraine.
Poland's zloty gained 0.2 percent against the euro. Hungary's forint firmed 0.1 percent and equities in the region also rose.
Hungarian drug maker Richter, which has significant business in Ukraine and Russia, reversed early gains and extended its slump after a 6 percent fall on Wednesday as its chief executive issued a profit warning.
ROMANIAN POLITICS HELP NOW
Romanian assets got an additional boost from easing domestic political tension on Wednesday.
President Traian Basescu ratified a review of a 4 billion- euro aid deal with the IMF, ending a weeks-long standoff, and endorsed a newly formed coalition government, just days after he threatened to block its creation.
The leu firmed 0.1 percent. Romania's five-year bonds were bid at a yield of 4.9 percent, down from 4.97 percent in the previous session, and 5.05 percent three days ago.
The government sold 700 million lei worth of Treasury bonds due in June 2017, as planned. Last month Romania failed to sell debt at three tenders as domestic political jitters and escalating violence in Ukraine weighed on assets.
Serbia's central bank kept its benchmark rate on hold at 9.5 percent for a third month running on Thursday, as expected, amid uncertainty over a mid-March election, pressure on the dinar and a pick-up in inflation.
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