September 26, 2018 / 9:40 AM / a month ago

CEE MARKETS-Crown firms, Czech central bank seen increasing rates again

    * Crown firms in tandem with regional peers
    * Czech c. bank is seen lifting main rate by 25 bps to 1.5
pct
    * CNB needs to signal more hikes to keep crown firm -trader
    * Hungarian bonds resist yield fall ahead of Thursday
auction

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Sept 26 (Reuters) - The Czech crown edged
higher on Wednesday as central bank (CNB) policymakers met and
were expected to raise rates for the third meeting in a row.
    The currency was 0.1 percent higher at 25.585 against the
euro at 0837 GMT, not far off 5-month highs.
    In other markets, the zloty gained as much as the
crown and the forint even more - 0.2 percent - on a cautious
rise in risk appetite in global markrts.
    The dollar, whose rally earlier this year put Central
European currencies under pressure, moved sideways ahead of the
Federal Reserve's meeting which will conclude after European
markets close.
    The CNB is expected to increase its main rate by 25 basis
points to 1.5 percent, level with Poland's benchmark rate and 60
basis points above the Hungarian central bank's main rate.
    The hike could give little support to the crown if the CNB
does not make it clear that another increase is likely before
the year ends, some analysts said.
    "The board (is) likely to point out (a) weaker (than
expected) currency as being a main reason for another rate raise
today," Komercni Banka rates trader Dalimil Vyskovsky said in a
note.
    The trader said markets have mostly priced in another rate
hike in November.
    A rise to 1.75 percent could already strengthen the crown
making it worthwhile to buy buying long-term Czech government
bonds in the short term, Raiffeisen analyst Stephan Imre said in
a note.
    The Czech yield curve flattened a bit, with 2-year bonds bid
higher by 3 basis points at 1.5 percent, while the 10-year yield
dropped 1 basis point to 2.21 percent. 
    Poland's corresponding yield dropped more, by 3 basis points
to 3.23 percent, tracking a retreat in the corresponding U.S.
and German yields, while the zloty was testing its strongest
levels against the euro this month.
    Hungary's 10-year yield did not join the drop in developed
markets, trading flat at 3.6 percent as investors were unwilling
to make the bonds cheaper ahead of a bi-weekly government bond
tender on Thursday, one Budapest-based fixed income trader said.
    The negative risk is that the Fed signals faster rate hikes,
while it is counterbalanced by late Tuesday's good news from a
rare Hungarian foreign currency bond sale, the trader added.
    The government sold one billion euros worth of seven-year
euro-denominated bonds at a 75 basis point spread over midswaps,
25 basis points below the initial target, with four times
oversubscription.
    Elsewhere, Romania's leu, which outperformed its
regional peers in the past half year, eased a tad versus the
euro, but was off Tuesday's six-week lows.  
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1037 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5850   25.6200    +0.14%    -0.17%
 crown      >                                       
 Hungary    <EURHUF=  323.5100  324.2000    +0.21%    -3.89%
 forint     >                                       
 Polish     <EURPLN=    4.2838    4.2873    +0.08%    -2.51%
 zloty      >                                       
 Romanian   <EURRON=    4.6605    4.6597    -0.02%    +0.41%
 leu        >                                       
 Croatian   <EURHRK=    7.4260    7.4272    +0.02%    +0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.3700  118.3700    +0.00%    +0.11%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1107.49  1106.340    +0.10%    +2.72%
                                       0            
 Budapest             35890.19  35868.88    +0.06%    -8.86%
 Warsaw                2290.98   2290.19    +0.03%    -6.92%
 Bucharest             8364.15   8378.04    -0.17%    +7.87%
 Ljubljana  <.SBITOP    837.85    848.08    -1.21%    +3.90%
            >                                       
 Zagreb                1797.35   1797.04    +0.02%    -2.47%
 Belgrade   <.BELEX1    720.27    727.75    -1.03%    -5.20%
            5>                                      
 Sofia                  623.42    623.52    -0.02%    -7.98%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.5030    0.0280   +202bps     +3bps
            R>                                      
   5-year   <CZ5YT=R    1.8870    0.0030   +197bps     +1bps
            R>                                      
   10-year  <CZ10YT=    2.2080   -0.0130   +168bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5460   -0.0320   +206bps     -3bps
            R>                                      
   5-year   <PL5YT=R    2.5320   -0.0320   +261bps     -3bps
            R>                                      
   10-year  <PL10YT=    3.2310   -0.0250   +270bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.95      2.14      2.26      1.57
            <PRIBOR=                                
            >                                       
 Hungary                  0.40      0.64      0.90      0.19
                                                    
 Poland                   1.77      1.81      1.85      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Andrew Heavens)
  
 
 
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