BUDAPEST: Romania's 10-year government bond yields reached their widest spread over Bunds since 2012 on Thursday and Hungarian bond yields rose amid worries over a rise in inflation in Central Europe.
A surge in wages is driving consumption and economic growth in the European Union's eastern wing. It has also contributed to a renewed rise in inflation this year.
March figures published in the past days showed that annual inflation approached the top of central bank target ranges in the Czech Republic and Hungary and exceeded it in Romania.
Comments by he European Central Bank and the Federal Reserve signaling no tightening in policy made the region's currencies and bonds relatively more attractive, but also fueled worries over economic growth.
The comments gave some relief to the region's government bonds on Wednesday, but Hungarian and Romanian yields resumed a rise on Thursday.
Hungary's bi-weekly government bond auctions drew healthy demand, but yields rose by 3 to 4 basis points, regaining the ground lost on Wednesday.
"It is like Romania: they also had bad inflation figures and investors have not digested them yet," one Budapest-based fixed income dealer said.
The prospect of loose monetary policy in the euro zone and the United States allows more accommodative conditions in the region as well, but high inflation figures still fuel worries.
Romania and Hungary have the highest inflation rates in the region, at 4 and 3.7 percent, respectively, while Hungary has the lowest central bank benchmark rate at 0.9 percent.
Romania's government bond yields rose 6 to 8 basis points. The 10-year yield, trading around 4.95 percent, was almost 5 percentage point above its German peer, its largest spread since late 2012.
Romania's spiraling inflation and budget and current account deficits draw concern, weighing on its bond prices, Raiffeisen analyst Gintaras Shlizhyus said in a note.
The leu eased slightly to 4.7575 against the euro by 1413 GMT.
The ROBOR overnight interbank interest rate, which indicates how tight liquidity conditions are, was lower at 3.17 percent, but still above its one-year moving average of 1.95 percent.
Elsewhere, the forint weakened by a quarter of a percent to 321.95 versus the euro.
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