Inflation fears push Polish, Hungarian gov’t bond yields higher

– Stocks in central Europe dropped on Thursday, tracking a fall in U.S. and European markets, while government bond yields in Poland and Hungary kept rising as higher-than-expected inflation data reinforced expectations of policy tightening.

Bucharest’s stocks .BETI led losses and were down 1.49%. Warsaw .WIG20 was down 1.43% while Budapest .BUX slid 0.3% and Prague .PX was down 0.53%.

Polish bond yields rose on Thursday, with 5-year government yields PL5YT=RR rising 15 basis points while yields on the 10-year bond PL10YT=RR were 11 basis points higher.

The reasons are inflation and “the NBP’s asset purchases being ramped up despite clear inflationary pressures and a strengthening economy,” Piotr Bartkiewicz, an economist at Bank Pekao said.

On Wednesday, JPMorgan warned of “taper tantrum” risk in Poland and Hungary.

With inflation stronger than expected and as economies begin to recover, central banks in the region will inevitably scale back the size of quantitative easing programmes through the second half of 2021, a JPMorgan report said.

Most CEE countries reported higher-than-expected CPI for April, however most rate setters look set to weather a looming spike in inflation and let their economies rebound from the COVID-19 shutdown.

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