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CEE MARKETS-Crown tests former cap level, Czech bills draw strong demand
April 20, 2017 / 11:29 AM / in 7 months

CEE MARKETS-Crown tests former cap level, Czech bills draw strong demand

    * Crown weakens near former cap level at 27 vs the euro
    * French elections, global inflation retreat are risks to
CEE fx
    * Czech Treasury bill auction strongly oversubscribed
    * No sign of central bank hawkishness despite surge in wages

 (Adds Czech Treasury bill auction)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, April 20 (Reuters) - The Czech crown
extended its losses against the euro on Thursday as investors
sitting on a huge pile of long positions struggle to take
profits, with risks from Sunday's first round of the French
presidential election weighing on sentiment.
    Investors are concerned that either or both of the far-right
and far-left French candidates, both of whom are Eurosceptic and
anti-euro, might make the decisive second round.
    The crown is vulnerable after investors bought tens of
billions of euros worth of the currency in the past months,
speculating on a surge.
    The Czech central bank removed its cap, which had kept the
crown weaker than 27 against the euro since 2013, two weeks ago,
and most of the crown long positions are still in the market,
with investors waiting for stronger levels to take profits.
    After an initial surge following the cap exit, the crown
 has retreated. On Thursday it almost touched the
former cap level, before rebounding to 26.92 by 1100 GMT, still
down by 0.2 percent.
    "It is a combination of the huge positioning (in the crown)
and external factors," one Prague-based dealer said, adding that
a plunge was unlikely for now, but a breach of 27.05 could lead
to an even bigger fall.
    The country's second Treasury bill auction since the removal
of the cap draw robust interest, with demand for the 5 billion
crowns worth of 17-week papers reaching 28.4 billion crowns.
    The government sold 20.4 billion crowns worth of bills. The
average yield rose though, to -0.35 percent from -1.25 percent
at an auction two weeks ago.
    With cheap crown financing through swaps still available,
investors can still earn even when yields on short-term debt
remain below zero.
    "Anyone who has euros and swaps to crowns and buys T-bills
has a nice carry between 1.5 and 2 percent," a dealer said.
    Commerzbank analysts said in a note that increased crown
volatility, until the crown long positions are reduced, was no
surprise.
    It is also a risk that inflation is retreating again
globally, and if that triggers speculation for a reintroduction
of a cap, a crown sell-off could follow, they said, adding
though that this scenario was unlikely.
    Regional central banks have not showed intentions to move
towards less loose policies despite a surge in wages which in
theory could lift prices.
    Poland reported 5.2 percent annual rise in wages for March
on Wednesday and Hungary a 10.7 percent jump on Thursday.
    Romania, where the net average wage was up 14.7 percent in
February, plans further wage increases.
    
              CEE        SNAPS   AT  1300          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             26.92  26.87  -0.16  0.32%
                            00     65      %  
 Hungary                 313.4  313.6   +0.0  -1.48
 forint                    500    400     6%      %
 Polish                  4.267  4.251  -0.37  3.20%
 zloty                       4      4      %  
 Romanian                4.541  4.538  -0.06  -0.13
 leu                         0      4      %      %
 Croatian                7.454  7.447  -0.09  1.36%
 kuna                        0      5      %  
 Serbian                 123.5  123.5   +0.0  -0.16
 dinar                     500    750     2%      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  973.4  967.5   +0.6   +5.6
                             7      4     1%     3%
 Budapest                32860  32688   +0.5   +2.6
                           .99    .09     3%     8%
 Warsaw                  2285.  2274.   +0.4   +17.
                            62     69     8%    34%
 Bucharest               8203.  8196.   +0.0   +15.
                            13     11     9%    78%
 Ljubljana               771.7  779.3  -0.97   +7.5
                             9      3      %     5%
 Zagreb                  1953.  1962.  -0.44  -2.08
                            44     10      %      %
 Belgrade     <.BELEX15  734.1  727.4   +0.9   +2.3
              >              4      4     2%     4%
 Sofia                   653.0  658.6  -0.84   +11.
                             9      1      %    37%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.09  -0.00   +069  -2bps
              >                     5    bps  
   5-year     <CZ5YT=RR  0.244  0.027   +069   +2bp
              >                          bps      s
   10-year    <CZ10YT=R  1.022  0.014   +079  -2bps
              R>                         bps  
 Poland                                            
   2-year     <PL2YT=RR  1.979  -0.07   +276  -9bps
              >                     1    bps  
   5-year     <PL5YT=RR  2.868   0.02   +332   +1bp
              >                          bps      s
   10-year    <PL10YT=R  3.407  0.043   +317   +1bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.33   0.35   0.42      0
              PRIBOR=>                        
 Hungary              <   0.23   0.31   0.39   0.16
              BUBOR=>                         
 Poland               <  1.747   1.79   1.83   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Radu Marinas in Bucharest; Editing by
Catherine Evans)
  
 
 

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