April 3, 2018 / 10:11 AM / a year ago

CEE MARKETS-Polish bond yield hits seven-month low, PMIs remain strong

    * Polish, Czech, Hungarian PMIs show continuing strong
    * Polish 10-year bond yield at 7-month low
    * Polish debt fell, expected low supply supports bonds
    * Hungarian assets steady or firmer ahead of Sunday's

    By Sandor Peto and Marcin Goettig
    BUDAPEST, April 3 (Reuters) - Poland's 10-year government
bond yield fell to a seven-month low as investors
expected little debt supply and low inflation in coming months,
despite strong manufacturing indexes from Warsaw, Prague and
    The Polish central bank is not expected to shift to a more
hawkish policy, which would weigh on bond prices, as robust
economic growth has not yet raised widespread concerns over
inflation in Poland, unlike for other central banks in the
    Poland's statistical office said the government's budget
deficit fell to 1.5 percent of economic output in 2017 from 2.3
percent in 2016. Its debt shrank to 50.6 percent from 54.2
percent of GDP.
    Budget figures for January and February showed a surplus and
the finance ministry has reduced the supply of government bond
issues planned for the second quarter of the year.
    The yield on Poland's 10-year bond traded below 3.16
percent, down 10 basis points from the last close on March 29.
Its Hungarian equivalent was flat at 2.45 percent.
    Poland's bond supply will be limited, "with still-high
demand from banks and non-bank financial institutions, and a
large inflow of cash to the market - more than 15 billion zlotys
from treasury bond redemptions and coupon payments," BZ WBK said
in a note.   
    While Hungarian and some Polish central bankers do not
expect a rise in record-low interest rates, or a big rise in
inflation, for years, Romania's central bank is expected on
Wednesday to deliver its third interest rate hike this year as
it fights a surge in inflation boosted by surging net wages.
    The Czech central bank is also expected to continue to
tighten interest rates later this year.
    March PMI manufacturing activity figures from the region
confirmed on Tuesday that regional economies continue to expand.
    Regional currencies were steady or firmed marginally as
global sentiment towards risk was fragile, also reflected by
mixed movements in regional equities.
    The Czech crown traded at 25.359 against the euro,
off a 1-1/2 month high of 25.295 touched in early trade.
    Budapest's main stock index rose 0.4 percent after an
initial fall. Hungarian government bonds were little changed in
thin trade, five days ahead of parliamentary elections.
    "Markets price in that there will be no government change
and the government will get more than 50 percent (of parliament
seats)," one Budapest-based fixed-income trader said.
    Opinion polls show a lead for Prime Minister Viktor Orban's
conservative Fidesz party, but the fractured opposition could
win in many constituencies if its voters choose the strongest
challenger to the government candidate, increasing uncertainty
over the outcome of the election.     
            CEE       SNAPSHOT   AT                         
            MARKETS             1123 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3590   25.3640    +0.02%    +0.72%
 crown      >                                       
 Hungary    <EURHUF=  312.5500  312.7000    +0.05%    -0.52%
 forint     >                                       
 Polish     <EURPLN=    4.2112    4.2114    +0.00%    -0.83%
 zloty      >                                       
 Romanian   <EURRON=    4.6595    4.6606    +0.02%    +0.43%
 leu        >                                       
 Croatian   <EURHRK=    7.4310    7.4321    +0.01%    -0.01%
 kuna       >                                       
 Serbian    <EURRSD=  118.0500  118.1800    +0.11%    +0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1116.82  1123.890    -0.63%    +3.59%
 Budapest             37415.01  37258.90    +0.42%    -4.98%
 Warsaw                2212.72   2210.38    +0.11%   -10.10%
 Bucharest             8709.15   8769.26    -0.69%   +12.32%
 Ljubljana  <.SBITOP    823.84    817.45    +0.78%    +2.17%
 Zagreb                1793.50   1804.97    -0.64%    -2.68%
 Belgrade   <.BELEX1    745.56    745.51    +0.01%    -1.87%
 Sofia                  659.71    649.17    +1.62%    -2.62%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7900    0.0730   +138bps     +6bps
   5-year   <CZ5YT=R    1.2390   -0.0070   +134bps     -1bps
   10-year  <CZ10YT=    1.8440   -0.0180   +135bps     -2bps
   2-year   <PL2YT=R    1.5190    0.0160   +210bps     +1bps
   5-year   <PL5YT=R    2.3700    0.0160   +248bps     +2bps
   10-year  <PL10YT=    3.1650   -0.0030   +267bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.96      1.06      1.22      0.90
 Hungary                  0.07      0.10      0.18      0.03
 Poland                   1.73      1.74      1.76      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Radu Marinas in Bucharest
Editing by David Holmes)
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