May 9, 2018 / 9:16 AM / 7 months ago

CEE MARKETS-Bond yields rise, currencies track euro/dollar rebound

    * Long-term bond yields continue to edge up, fx track EURUSD
    * Forint hits 10-yr low vs dlr, rebounds on dlr retreat
    * Czech bond yields rise, but no worries ahead of auction  
    * Dinar trades steady, some investors see rate cut again

    By Sandor Peto
    BUDAPEST, May 9 (Reuters) - Central European government bond
yields continued to rise on Wednesday as a strong dollar and
rising U.S. interest rates fuelled bond selling in emerging
    "The United States pulling out of the (international nuclear
(deal) with Iran does not help sentiment either," one
Budapest-based fixed income trader said.
    The bond sell-off which mainly affects longer maturities may
curb demand at Hungary's bi-weekly auction on Thursday, even
though it comes in "average low" turnover, and with yields
rising less than in other emerging markets, the trader said.
    Hungary's 10-year yield, rising 5 basis points on Wednesday
to 2.73 percent, is up by about 20 basis points this month, much
less than Turkey's 150 basis point increase and about in line
with Romania's and Russia's rise.
    In Central Europe, the most liquid Polish market has been
hit hardest.
    Its 10-year yield rose 5 basis points to 3.3 percent on
Wednesday, up 27 basis points this month, about the same as
South Africa's and Mexico's rise. 
    Regional currencies reversed an early weakening.
    The zloty, the forint and the leu
 firmed by 0.1-0.2 percent against the euro, closely
tracking the euro/dollar cross, with the Hungarian unit
rebounding from a 10-month low hit in early trade.
    Czech markets were closed on Tuesday due to a holiday.
Despite this, five- and 10-year Czech yields rose only by 3-4
basis points on Wednesday. The 10-year yield has increased only
by about 6 basis points this month.
    This is because some foreign investors, who had stocked up
on Czech bonds before the central bank last year removed its cap
on the crown, are still holding onto their bond holdings, hoping
for further crown gains. The central bank has said a slow crown
appreciation would mean more interest rate hikes. 
    The global bond sell-off did not trigger worries over
Monday's Czech bond auction, traders said, where the government
offers 15 billion crowns worth of papers, 3 billion crowns more
than originally planned.
    The Czech crown hit multi-month lows against the
euro last week, like its regional peers, but it gets some
protection from expectations for continuing central bank rate
hikes, just like the leu.
    Hungary's and Poland's central banks have signalled that
they could keep their record low rates on hold for years.
    Hungary's inflation figures released on Wednesday are
unlikely to change that, with the annual rate rising to 2.3
percent in March from 2 percent in April, as expected.

    Eleven out 12 analysts in a Reuters poll expect Serbia's
central bank to keep rates on hold at its meeting on Thursday.

    But the bank unexpectedly cut its rates at its last two
meetings to rein the strong dinar, and could repeat
that, Raiffeisen analyst Imre Stephan said in a note.
    The dinar traded steady at 118.14 versus the euro.  
            CEE       SNAPSHOT   AT                         
            MARKETS             1017 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5860   25.5910    +0.02%    -0.17%
 crown      >                                       
 Hungary    <EURHUF=  314.7500  315.2100    +0.15%    -1.22%
 forint     >                                       
 Polish     <EURPLN=    4.2805    4.2895    +0.21%    -2.43%
 zloty      >                                       
 Romanian   <EURRON=    4.6460    4.6520    +0.13%    +0.73%
 leu        >                                       
 Croatian   <EURHRK=    7.3900    7.3935    +0.05%    +0.55%
 kuna       >                                       
 Serbian    <EURRSD=  118.1400  118.1600    +0.02%    +0.30%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1103.30  1109.040    -0.52%    +2.33%
 Budapest             37250.33  37164.55    +0.23%    -5.40%
 Warsaw                2248.22   2236.40    +0.53%    -8.65%
 Bucharest             8780.78   8762.92    +0.20%   +13.25%
 Ljubljana  <.SBITOP    842.58    843.70    -0.13%    +4.49%
 Zagreb                1824.26   1824.75    -0.03%    -1.01%
 Belgrade   <.BELEX1    737.17    736.73    +0.06%    -2.98%
 Sofia                  651.82    653.01    -0.18%    -3.78%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8070    0.1100   +136bps    +10bps
   5-year   <CZ5YT=R    1.2760    0.0410   +132bps     +3bps
   10-year  <CZ10YT=    1.7890    0.0310   +121bps     +1bps
   2-year   <PL2YT=R    1.5820    0.0150   +214bps     +1bps
   5-year   <PL5YT=R    2.5660    0.0430   +261bps     +3bps
   10-year  <PL10YT=    3.2880    0.0320   +271bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.97      1.08      1.18      0.90
 Hungary                  0.13      0.20      0.27      0.05
 Poland                   1.73      1.77      1.80      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Jason Hovet in Prague and Radu Marinas
in Bucharest
Editing by Alison Williams)
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