BUDAPEST/WARSAW: Central European currencies and long-term government bonds traded near this month's weakest levels on Wednesday after the US 10-year Treasury yield broke through the 3-percent level.
Investors have closely watched the past few weeks' rally in yields in the United States and in the euro zone, as higher yields there make assets in emerging markets relatively less attractive.
Poland's 10-year bond yield rose five basis points to 3.14 percent.
A bond dealer in Warsaw said debt expiries and limited supply may mute the impact from abroad.
"This may generate demand for bonds from banks who do not want to hold too much cash," the trader added.
Czech, Hungarian and Romanian long-term yields also rose by 1-2 basis points.
Investors now watch if core market yield have momentum left to rise further and wait for signals from the European Central Bank's (ECB) Thursday meeting, one Budapest-based fixed income trader said.
"(US yields) are at critical levels and the question is if they go further up as no resistance is in sight," the trader said.
"I would say the correlation (of Central European bonds) with Bunds is stronger... From (ECB President Mario) Draghi, the market expects dovish comments," the trader added.
Global market trends have often overshadowed differences in monetary policies in the rapidly-growing Central European economies in the past months.
The crown, the forint and the zloty slipped to four-week lows from 2-month highs since the middle of April.
Continuing flows into the dollar weakened the forint and the zloty, the region's most liquid units, by 0.1 percent in their euro cross by 0849 GMT.
But the crown rebounded, firming a shade to 25.454 against the euro, after two Czech rate setter indicated that interest rate hikes which started last year can continue.
Vojtech Benda, a hawkish rate setter told Reuters on Tuesday that he saw no reason to hike rates at the bank's May 3 meeting, but risks were "rather in the inflationary side".
Another rate setter, Tomas Nidetzy was quoted on Wednesday as saying that no action was needed yet, but the bank was likely to deliver one more rate hike this year.
Regional equities mostly dropped slightly, tracking a global trend driven by concerns over the US yield rise.
Bucharest's main index, however, rising marginally, set a new 10-year high. It has outperformed regional peers, partly driven by bigger-than-expected dividends.
Banca Transilvania shares rose 0.6 percent, after the bank reported a 49-percent annual surge in its first-quarter profits.
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