December 2, 2016 / 10:16 AM / 2 years ago

CEE MARKETS-Zloty hits 5-month low ahead of S&P ratings review

* Zloty hits 5-month low, forint 4-month low
    * Risk is downgrade of Poland by S&P after markets close
    * Bond markets under pressure though ECB may extend bond
    * Regional stock markets mixed

    By Sandor Peto and Jakub Iglewski
    BUDAPEST/WARSAW, Dec 2 (Reuters) - The zloty hit a 5-month
low due to fears that Standard & Poor's may downgrade Poland's
debt rating, while long-dated government bonds remained under
pressure in Central Europe.
    S&P is expected to review Poland's debt rating late on
    The country got its first downgrade since Communism fell
from S&P in January. Its 'BBB+' rating is on negative outlook
and a rise in government spending may put further pressure on
Poland's ratings, analysts have said.
    "We do not expect any (rating) change and such a decision
will not affect the zloty's price. But in case of a rating cut
EUR/PLN could visit 4.60 (level)," mBank said in a note. 
    The zloty extended Thursday's losses and touched a
new 5-month low against the euro.
    It traded at 4.492 at 0918 GMT, near the 4.5 resistance,
weaker by 0.4 percent. The forint tracked it, hitting
4-month lows, and eased 0.1 percent to 314.48.
    Poland's 10-year government bond yield, at 3.76 percent, was
flat as corresponding U.S. yields retreated from 17-month highs.
    Key risks are strengthening expectations for Federal Reserve
interest rate hikes and fears of a further rise in global
long-term yields and of political uncertainty in Europe after
Italy's referendum and Austria's presidential election at the
    Pressure on long-dated European bonds was eased by a Reuters
report that according to senior sources the European Central
Bank will extend its bond purchase programme beyond March.
    But Hungary's 10-year bond yield rose 7 basis points to 3.55
percent. It is up by 40 basis points from levels before Donald
Trump won the U.S. election on Nov. 8.
    The Polish yield is up 70 basis points, despite Warsaw's
better credit ratings. It is above Hungary's yield as Budapest's
ratings improved to investment grade this year.
    Some investors trust that those upgrades will trigger
foreign capital inflows later. 
    But Citigroup, which keeps Polish credit 'underweight',
lowered its recommendation for Hungary's foreign currency bonds
to "marketweight" in a note as it is "worried about core market
sell-off and the contagion effects on EM IG credits.
    Nordea analyst Anders Svendsen was optimistic over the
forint which he said in a note was undervalued based on economic
fundamentals, and could test 300 against the euro next year.
    The median forecast of analysts in a Reuters poll published
on Thursday showed that the forint could trade near 310 over the
next 12 months, while a pick-up in economic growth could help
the zloty firm to 4.29 against the euro. 
           CEE         SNAPSHOT    AT  1018 CET          
                       Latest     Previous  Daily   Chang
                       bid        close     change  in
 Czech                   27.0560   27.0625   +0.02  -0.21
 crown                                           %      %
 Hungary                314.4800  314.0950  -0.12%  0.05%
 Polish                   4.4920    4.4755  -0.37%  -5.21
 zloty                                                  %
 Romanian                 4.5119    4.5124   +0.01  0.16%
 leu                                             %  
 Croatian                 7.5428    7.5455   +0.04  1.28%
 kuna                                            %  
 Serbian                123.0700  123.0400  -0.02%  -1.30
 dinar                                                  %
 Note:     calculated  previous   close at  1800         
 daily     from                             CET     
                       Latest     Previous  Daily   Chang
                                  close     change  in
 Prague                   884.03    885.05  -0.12%  -7.56
 Budapest               29847.60  29998.19  -0.50%   +24.
 Warsaw                  1783.44   1783.94  -0.03%  -4.07
 Buchares                6883.47   6833.93   +0.72  -1.73
 t                                               %      %
 Ljubljan                 685.76    687.44  -0.24%  -1.49
 a                                                      %
 Zagreb                  1984.70   1986.23  -0.08%   +17.
 Belgrade                 700.92    701.30  -0.05%   +8.8
 Sofia                    562.74    563.41  -0.12%   +22.
                       Yield      Yield     Spread  Daily
                       (bid)      change    vs      chang
                                            Bund    e in
 Czech                                              sprea
 Republic                                           d
   2-year                 -0.747     0.005  -001bp   +0bp
                                                 s      s
   5-year                 -0.132     -0.01   +026b  -1bps
           <CZ10YT=RR      0.585         0   +025b   +2bp
 10-year   >                                    ps      s
   2-year                  1.964     0.003   +271b   +0bp
                                                ps      s
   5-year                  2.986     0.015   +338b   +2bp
                                                ps      s
           <PL10YT=RR      3.768     0.012   +343b   +3bp
 10-year   >                                    ps      s
           FORWARD     RATE       AGREEMENT              
                       3x6        6x9       9x12    3M
 Czech             <P       0.29      0.28    0.27      0
 Rep       RIBOR=>                                  
 Hungary           <B       0.51      0.54     0.6   0.54
 Poland            <W       1.78       1.8    1.86   1.73
 Note:     are for                                       
 FRA       ask prices                               
 (Additional reporting by Radu Marinas in Bucharest; Editing by
Janet Lawrence)
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