May 17, 2018 / 9:55 AM / a year ago

CEE MARKETS-Bonds and currencies ease as U.S. yields rise

    * Continuing rise in U.S. 10-yr yield weighs on CEE fx,
    * Regional currencies could be oversold -analyst, dealer
    * Concern over Italy weighs on bond prices

    By Sandor Peto
    BUDAPEST, May 17 (Reuters) - Central European government
bonds and currencies mostly eased on Thursday as U.S. and euro
zone bond yields rose and there were concerns that investors
could resume dollar buying at the expense of emerging markets.
    The region's most liquid currencies, the zloty and
forint, shed 0.1 percent against the euro by 0859 GMT.
    A strengthening of the dollar and a rise in the yield of
U.S. 10-year Treasuries have been a key influence on regional
assets this month, prompting a sell-off in emerging markets.
    The selling lost some steam on Wednesday, but investors
still watch trends in dollar markets while keeping one eye on
positioning indicators because some assets in emerging markets
and Central Europe could have become oversold.
    The last time emerging currencies were as oversold as now,
in 2015, led to a rally, so positioning for a short-term
reversal of the dollar rally "is starting to look interesting",
Societe Generale analyst Jason Daw said in a note.
    However, "risk deployment should be modest", he added,
citing Federal Reserve interest rate tightening that could
result in a stronger dollar in the medium term.
    Positions to sell Central European assets including the
forint may have become overstretched, one Budapest-based
currency dealer said.
    "But if there is a gobal repricing, this can only slow the
process," the dealer said.
    "The original cause of the weakening - the rise in U.S. and
euro zone yields - does not appear to have ended, and that keeps
the forint under pressure."
    A continuing rise in oil prices and concern over the
policies of Italy's incoming government keep upwards pressure on
core market yields, while jitters in Turkish markets keeps sour
investor sentiment on emerging markets, analysts said.
    Romania led a rise in yields in Central Europe.
    Hungarian bonds were steady in early trade, but the 10-year
yield was near a nine-month high at 3.04 percent, staying on the
weaker side of the 3 percent psyschological level.
    Investors have ignored differences in monetary policy
directions in the region during this month's sell-off.
    Yields have risen both in Hungary and Poland, the central
banks of which signalled that they could keep rates on hold at
record lows for years, and in the Czech Republic and Romania,
where official interest rates have already started to rise.
    Regional equities mostly rose slightly, in line with the
international trend. The exception was Warsaw, where the
bluechip index dropped 0.6 percent, dragged down by
clothing retailer LPP and insurer PZU.
    LPP reported a net loss for the first quarter on Thursday.

            CEE       SNAPSHOT   AT                         
            MARKETS             1059 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5450   25.5420    -0.01%    -0.01%
 crown      >                                       
 Hungary    <EURHUF=  316.4700  316.2000    -0.09%    -1.76%
 forint     >                                       
 Polish     <EURPLN=    4.2864    4.2807    -0.13%    -2.57%
 zloty      >                                       
 Romanian   <EURRON=    4.6365    4.6375    +0.02%    +0.93%
 leu        >                                       
 Croatian   <EURHRK=    7.3830    7.3820    -0.01%    +0.64%
 kuna       >                                       
 Serbian    <EURRSD=  118.0300  118.0700    +0.03%    +0.40%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1110.79  1106.060    +0.43%    +3.03%
 Budapest             37693.31  37574.99    +0.31%    -4.28%
 Warsaw                2262.67   2275.91    -0.58%    -8.07%
 Bucharest             8567.20   8576.50    -0.11%   +10.49%
 Ljubljana  <.SBITOP    895.31    897.04    -0.19%   +11.03%
 Zagreb                1846.83   1844.19    +0.14%    +0.21%
 Belgrade   <.BELEX1    741.29    741.97    -0.09%    -2.44%
 Sofia                  646.16    642.57    +0.56%    -4.62%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8990    0.1130   +145bps    +11bps
   5-year   <CZ5YT=R    1.3360    0.0170   +135bps     +1bps
   10-year  <CZ10YT=    1.8600   -0.0010   +123bps     -2bps
   2-year   <PL2YT=R    1.6180    0.0120   +217bps     +1bps
   5-year   <PL5YT=R    2.5370    0.0370   +255bps     +3bps
   10-year  <PL10YT=    3.2860    0.0190   +265bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.00      1.14      1.28      0.90
 Hungary                  0.07      0.28      0.40      0.00
 Poland                   1.73      1.78      1.82      1.70
 Note: FRA  are for ask prices                              
 (Editing by David Goodman)
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