BUDAPEST: Hungarian government bond yields continued to ease on Thursday, but levels remained relatively elevated, attracting investors despite a rise in yields in Europe and the United States.
A rapid rise in yields in recent weeks has encouraged foreign investors to enter Central Europe's most volatile bond market, traders and analysts said.
Hungarian yields dropped 1-3 basis points along the curve on Thursday, with 10-year paper trading at 3.73 percent as buyers continued to step in.
That was only 1 basis point lower from Wednesday, but in the previous session the yield fell 20 basis points, while yields were rising in developed markets and in other Central European countries.
Ten-year yields in Germany and Poland were 2 basis points higher at 0.48 and 3.21 percent respectively on Thursday.
Earlier this month the yield on Hungary's 10-year bond rose around 40 basis points as inflation worries, coupled with the lowest short-term interest rates in the European Union's eastern wing, made long-term paper vulnerable.
"After the rise in the yield to near 4 percent, it has become attractive, and buyers arrived, mainly from abroad," said Gergely Palffy, a Budapest-based analyst at Raiffeisen.
"The 4 percent level could be approached again later this year, and that could trigger inflows from abroad," he added.
The forint-denominated bond holdings of foreign investors remains near its highest levels since 2015.
Recent comments from government's debt management agency and central bank officials about a desire to channel more retail savings into the government bond market may have contributed to the retreat of domestic yields, one Budapest-based trader said.
A rise in Hungary's annual inflation to 3.6 percent in September, the highest since early 2013, kept attention focused on price developments amid worries that the central bank may not act in time to rein in inflation.
In neighbouring Romania, a rise in inflation to above 5 percent by the middle of this year has also boosted government bond yields.
As inflation is expected to retreat in coming months, 3-year Romanian bonds offered at an auction on Thursday should attract sufficient demand, Raiffeisen analyst Stephan Imre said.
"(Romanian government bonds) come out good on our real yield measures in the short to medium term," he said in a note.
"We nevertheless reiterate looming fiscal risks that should finally increase the pressure on the central bank to recommence rate hikes in 2019," he added.
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