January 17, 2019 / 10:10 AM / 9 months ago

CEE MARKETS-Romanian bond yield rises ahead of auction, bucking region

    * Yields drop elsewhere, good auction seen in Hungary
    * Forint yields ground after surge on hawkish comments

    By Sandor Peto
    BUDAPEST, Jan 17 (Reuters) - Romanian 10-year government
bond yields traded at 3-month highs ahead of an auction on
Thursday, bucking a retreat elsewhere in Central Europe, as
worries over Bucharest's tax increases continue to weigh on
Romanian markets.
    The 2019 hikes, announced four weeks ago, hit the bank and
energy sectors and wiped a fifth off Bucharest's stock index,
 also keeping the leu under pressure over
worries about the Romanian business environment.
    The currency traded at 4.689 versus the euro at 0926 GMT, a
touch weaker but near 7-month lows reached on Wednesday.
    The Romanian central bank, which keeps the leu in a managed
float regime, probably intervened in the market "to smooth the
speed of the Romanian leu's weakening, rather than stop/reverse
it," ING analysts said in a note.
    "The usual spike in turnover ahead of local fixing seems to
confirm that the NBR remains hands on," they said.
    The analysts added that the government could cut its 10-year
bond auction on Thursday, allocating papers at the top end of
secondary market yields around 5.05 percent.    
    Romanian 10-year papers were quoted around 5.06 percent,
their highest level since Oct. 8.
    A sharp decline in inflation in the region in the past
months, and a fall in U.S. yields, prompted a plunge in bond
yields in Central Europe, including Romania, late last year.
    The decline in Hungary and Poland continued this year, but
Romanian bond prices have given up all of their gains.
    On Thursday, Hungary and Poland's long-term yields dropped
slightly, following a jump on Wednesday tracking a more moderate
rise in core market yields after British Prime Minister Theresa
May's European Union exit deal was rejected by parliament.
    Hungary's second government bond auction this year could
draw healthy demand on Thursday, a Budapest-based trader said.
    "This is the last auction of the (10-year) 27/A bonds, and I
expect good interest...There was good demand at the last auction
for that bond, too," the trader said.
    The bonds traded at 2.77 percent in the secondary market, a
touch lower from Wednesday's fixing.
    The forint and the zloty eased 0.1
percent versus the euro following a surge on Wednesday after
Hungarian central bank Deputy Governor Marton Nagy said monetary
tightening could start if core inflation rises to 3 percent.

    The forint was trading at 321.7.
    "After a 3-forint firming in the exchange rate, today's
slight correction is natural," a dealer said, adding that 321.3
remained a strong resistance level.  
            CEE       SNAPSHOT   AT                         
            MARKETS             1026 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.5380   25.5410    +0.01%    +0.66%
 crown      >                                       
 Hungary    <EURHUF=  321.7000  321.4000    -0.09%    -0.19%
 forint     >                                       
 Polish     <EURPLN=    4.2860    4.2825    -0.08%    +0.08%
 zloty      >                                       
 Romanian   <EURRON=    4.6890    4.6876    -0.03%    -0.75%
 leu        >                                       
 Croatian   <EURHRK=    7.4275    7.4265    -0.01%    -0.24%
 kuna       >                                       
 Serbian    <EURRSD=  118.3500  118.3000    -0.04%    -0.04%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1019.17  1019.000    +0.02%    +3.31%
 Budapest             40797.00  40933.04    -0.33%    +4.24%
 Warsaw                2369.73   2364.17    +0.24%    +4.09%
 Bucharest             7099.29   7077.10    +0.31%    -3.85%
 Ljubljana  <.SBITOP    832.92    827.54    +0.65%    +3.56%
 Zagreb                1756.92   1752.38    +0.26%    +0.46%
 Belgrade   <.BELEX1    698.88    704.25    -0.76%    -8.25%
 Sofia                  563.91    563.49    +0.07%    -5.14%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7090   -0.0580   +231bps     -6bps
   5-year   <CZ5YT=R    1.7760    0.0210   +212bps     +2bps
   10-year  <CZ10YT=    1.8300   -0.0060   +161bps     -1bps
   2-year   <PL2YT=R    1.3680   -0.0460   +197bps     -5bps
   5-year   <PL5YT=R    2.1970   -0.0030   +254bps     +0bps
   10-year  <PL10YT=    2.7810    0.0010   +256bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.15      2.21      2.25      2.01
 Hungary                  0.32      0.58      0.77      0.13
 Poland                   1.73      1.73      1.73      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest and Jason
Hovet in Prague
Editing by Mark Heinrich)
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