CEE MARKETS-Inflation fears push Polish, Hungarian gov't bond yields higher

By Anita Komuves BUDAPEST, May 13 (Reuters) - 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 led losses and were down 1.49%. Warsaw was down 1.43% while Budapest slid 0.3% and Prague was down 0.53%. Polish bond yields rose on Thursday, with 5-year government yields rising 15 basis points while yields on the 10-year bond 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. Hungarian government bond yields on the long end rose about 10 basis points on Thursday morning, continuing a rise since Tuesday when higher-than-anticipated CPI data were published, traders said. The yield on the Hungarian 10-year government bond was 3.09% on Thursday. The 15-year yield was 3.54% while the 20-year bond's yield was 3.60%. "The market is eyeing what will be a stronger force in the next few months, the central bank's QE program or the rise in inflation," a Budapest-based fixed-income trader said. The Hungarian forint was 0.21% firmer, outperforming its peers and trading at 356.75 per euro. "Investors have a positive view of CEE currencies now and the fast pace of vaccinations and the reopening of the economy also helps," a Budapest-based trader said. The Romanian leu edged higher on Thursday, a day after the central bank kept its benchmark interest rate on hold at 1.25%. CEE SNAPSHO AT MARKETS T 1129 CET CURRENC IES Latest Previous Daily Change bid close change in 2021 EURCZK= Czech EURHUF= Hungary 0 EURPLN= Polish EURRON= Romania EURHRK= Croatia EURRSD= Serbian 0 Note: calculated from 1800 daily CET change Latest Previous Daily Change close change in 2021 .PX Prague 1104.40 1110.260 -0.53% +7.52% 0 .BUX Budapes 44028.8 44160.71 -0.30% +4.56% t 3 .WIG20 Warsaw 2061.43 2091.39 -1.43% +3.90% .BETI Buchare 11588.0 11763.07 -1.49% +18.18 st 8 % .SBITOP Ljublja <.SBITOP 1071.81 1075.87 -0.38% +18.98 na > % .CRBEX Zagreb 1944.81 1946.80 -0.10% +11.82 % .BELEX1 Belgrad <.BELEX1 763.02 762.24 +0.10% +1.92% 5 e 5> .SOFIX Sofia 516.89 517.68 -0.15% +15.50 % Yield Yield Spread Daily (bid) change vs Bund change in Czech spread Republi c CZ2YT=R s CZ5YT=R s CZ10YT= s Poland PL2YT=R s PL5YT=R s PL10YT= s FORWARD 3x6 6x9 9x12 3M interba nk Czech 0.64 0.97 1.32 0.36 Rep Hungary 1.04 1.25 1.45 0.79 Poland 0.32 0.41 0.55 0.21 Note: are for ask FRA prices quotes ********************************************* ***************** (Additional reporting by Alan Charlish in Warsaw, editing by Mark Heinrich)