BUDAPEST: Central European currencies traded near multi-month lows and government bonds eased on Friday due to concern that US interest rates could surge under the presidency of Donald Trump.
Growth and EU membership keeps the region less vulnerable than other emerging economies, but a rise in US rates could make its government bonds relatively less attractive.
Investors digesting Trump's victory initially focused on his vows to boost the US economy but attention has turned towards a resulting likely global rise in inflation.
"Sentiment towards emerging assets appears to have deteriorated overnight ... amid prospects of re-inflation induced by the new US president's policies, a process dubbed 'Trumpflation'", Bucharest-based ING analysts said in a note.
European bonds have tracked a slide of US Treasuries, with Polish and Hungarian long-term debt prices leading the losses as these markets are more liquid than elsewhere in Central Europe.
Warsaw markets were closed due to a national holiday, but the zloty plunged to a 4-month low against the euro in international trade. At 1018 GMT it traded at 4.4125, weaker by 0.8 percent.
The forint shed 0.4 percent to 309.4, hovering near 6-week low territory beyond 310.
Hungary's 5- and 10-year bond yields rose 8-9 basis points after 20 basis points rise in the previous session. The 10-year paper traded at 3.41 percent, its highest levels for months.
"Possibly bigger rate hikes in the US may even lead the European Central Bank to start to taper its monetary stimulus from March," one Budapest-based fixed income trader said.
"Improving growth prospects in the world and higher inflation is bad for bonds, good for stocks," he added.
Regional stock markets did not extend the past two days' gains, but by trading flat they still well outperformed the MSCI emerging market index which shed 2.3 percent.
The Czech Republic's safe-haven bond market did not track the regional weakening, with its ultra-low yields trading mixed.
The Czech crown hit its weakest level since early July against the euro, easing to 27.115, but its 0.2 percent fall was moderate relative to other currencies in the region.
If protectionism rises in US trade policy, open emerging economies like China, Korea, Taiwan, Mexico, but also Hungary and Czechs face risks, said Simon Quijano-Evans, analyst of Legal & General Investment Management.
"(They) may be facing the biggest rethink in a decade as Brexit, the US elections and possible 'nationalist' surprises out of the EU really shake the boat," he said.
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