PRAGUE, Aug 20 (Reuters) – Czech bond yields rose from multi-year lows for a third straight day on Tuesday, while central Europe’s currencies drifted after a short-lived rally.
Central European bond yields have dropped steadily since May as the European Central Bank and U.S. Federal Reserve turned dovish in the face of slowing global trade.
Czech yields, the region’s lowest, are close to troughs last seen in 2017. The benchmark 10-year bond was quoted with a yield of 1.012%, up about 2 basis points on the day.
“It could be profit taking … after such a big rally,” one Prague dealer said, adding markets will take their cue from the ECB’s September meeting, when more policy easing is expected.
The market is largely ignoring 2020 budget negotiations that are expected to put pressure on deficit targets next year.
“Bond markets are not driven by fundamentals anymore, only by central banks,” the dealer said.
The shift in central banks has pushed central Europe’s rate setters into wait-and-see mode even as their economies maintain decent growth. The Czech central bank has paused a two-year tightening cycle since May and left the direction of its next move open.
The Czech crown was down at 25.797 to the euro, off last week’s 2019 low of 25.912, at 1014 GMT. Poland’s zloty inched up to 4.366. Romania’s leu was little changed at 4.73.
Santander Bank Polska said the zloty could recover some ground later this month with dovish signals coming from the ECB and others.
Fed Chairman Jerome Powell is due to make a speech on Friday at an annual meeting of central bankers in Jackson Hole, Wyoming. Investors will also be paying attention to minutes from the ECB and the Fed this week.
Euro zone inflation data on Monday that was weaker than first reported also boosted expectations of more ECB easing, Raiffeisen said.
“(It) supports our call for a sideways trend in EUR/USD over the upcoming months. The projected stimulus should also support CEE currencies in volatile times,” the bank said in a note.
(Reporting by Jason Hovet in Prague, Alan Charlish in Warsaw and Radu Marinas in Bucharest; editing by Larry King)