Hungary raised its offer to 47 billion forints ($211 million) at its bond auctions where the average yield of 3-year bonds sold fell 16 basis points from Wednesday's market levels to 6.67 percent, an 11-month low.
Traders said forward rate agreements are still pricing in a possible 25 basis point cut in the central bank's 7 percent base rate next week.
"That's in the cards while this has been expected for weeks," one Budapest-based fixed income trader said, adding that increased risk appetite in global markets was the key influence.
Another trader did not rule out further sharp falls in yields if the hunger of foreign investors for high yields remains unbroken in coming weeks.
Hungary's forint, the year's top performer in Central Europe with a 14 percent gain, firmed 0.6 percent to 275.68 to the euro by 1028 GMT, helped by its high interest rates and market hopes that a vital international funding deal will be sealed later this year.
"The euro/dollar fell quite remarkably after the Fed minutes overnight, and stocks are also in positive territory," a Budapest-based currency dealer said.
The Federal Reserve is likely to deliver another round of monetary stimulus "fairly soon" unless the US economy improves considerably, minutes from the US central bank's latest meeting suggested.
Central European stocks mostly rose, but shares in Polish gas monopoly PGNiG fell about 3 percent after the company posted a large second-quarter net loss.
ROMANIAN TENDER EYED
The Polish zloty added 0.1 percent. The Romanian leu was flat ahead of a 200 million lei ($55.48 million) four-year treasury bond tender due later on Thursday.
At a previous tender on July 12, Romania sold 400 million lei worth of debt as planned, with the average yield at 6.41 percent, up 13 basis points from a similar auction in June.
"Recent auctions have showed a growing dichotomy between finance ministry allocations and market financing costs. In light of Tuesday's developments at the Constitutional Court, we believe political risks remain very material and yields could increase further," Mihai Patrulescu, an economist at Bancpost, said.
Romanian assets have been hurt in recent weeks by a political battle between President Traian Basescu and Prime Minister Victor Ponta that has stalled policymaking in the IMF-supported country, raising concern over its ability to keep to targets set out in a 5 billion euro standby financing deal. On Tuesday the Constitutional Court ruled that a referendum to impeach Basescu was invalid.
The Czech crown gained 0.4 percent but one analyst said it could retreat later given a weak Czech economy and expectations for another interest rate cut to a new record low.
"We consider the crown strengthening that we saw in the beginning of the previous week as unjustified fundamentally," Komercni Banka said in a note.
"The domestic money market is counting on a certain cut in interest rates at the central bank's September meeting. That does not really boost the attractiveness of the Czech currency."