April 24, 2018 / 2:13 PM / 10 months ago

CEE MARKETS-Currencies at 4-week lows, Hungary keeps loose monetary policy

    * Hungary central bank holds fire, reaffirms loose policy
    * Forint, zloty, crown trade around 4-week lows
    * Investors watch U.S. 10-year yield testing 3 percent
    * Further U.S. yield rise could boost CEE LT yields-trader

 (Recasts with Hungarian central bank, trader comments)
    By Sandor Peto
    BUDAPEST, April 24 (Reuters) - Central European currencies
traded around four-week lows against the euro on Tuesday as U.S.
Treasury yields hit multi-year highs, while Hungary's central
bank reaffirmed its loose policy.
    The forint, the Czech crown and the
zloty eased less than 0.1 percent by 1311 GMT, but
their fall came after a bigger drop on Monday when money flowed
into dollar assets.
    Regional financial asset prices hardly moved on Tuesday as
investors waited to see if the 10-year U.S. Treasury bill yield
would breach the key 3 percent line.
    "If it does, in a couple of days long-end yields could go up
by 20 basis points (in the region)," one Budapest-based fixed
income trader said.
    "Even worse, if the European Central Bank issues any hawkish
hints (after its meeting on Thursday)," the trader added.
    Higher debt yields in core markets would make the region's
assets relatively less attractive.
    Central Europe's long-term bond yields traded around
multi-week highs on Tuesday.
    Hungary's 5- and 10-year yields rose 2-3 basis points to
1.32 and 2.52 percent, respectively, even though the central
bank repeated after its meeting that it would seek to maintain
loose monetary conditions across the yield curve.
    The bank, led by a key ally of Prime Minister Viktor Orban,
holds its first meeting since the ruling party secured a tight
two-thirds parliament majority at elections on April 8.
    Inflation has been mild in most of the region this year.
    An earlier rise in the Czech Republic and a surge in Romania
since late last year prompted central bank rate hikes, while
Hungarian and Polish rate setters have not showed worries over
    The crown firmed only briefly after Czech National
Bank board member Marek Mora was quoted as saying that the crown
had strengthened more slowly than expected.
    The bank has forecast the average crown rate to firm to 24.9
versus the euro in the second quarter. It traded at 25.45 on
    The leu was steady at 4.654 against the euro after
Romanian President Klaus Iohannis offered to mediate between the
ruling party and the central bank in a row over inflation, which
jumped to 5 percent in annual terms in March, the highest since
    Late last week, the leader of the Social Democrats lashed
out against criticism that a surge in inflation was driven by
his party's fiscal and income policies, accusing the central
bank of exaggerating the impact of higher trade deficits.
            CEE       SNAPSHOT   AT                         
            MARKETS             1511 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4500   25.4330    -0.07%    +0.36%
 crown      >                                       
 Hungary    <EURHUF=  312.6700  312.5000    -0.05%    -0.56%
 forint     >                                       
 Polish     <EURPLN=    4.2023    4.2006    -0.04%    -0.62%
 zloty      >                                       
 Romanian   <EURRON=    4.6540    4.6540    +0.00%    +0.55%
 leu        >                                       
 Croatian   <EURHRK=    7.4170    7.4120    -0.07%    +0.18%
 kuna       >                                       
 Serbian    <EURRSD=  117.9900  118.1200    +0.11%    +0.43%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1128.06  1121.470    +0.59%    +4.63%
 Budapest             38169.61  38123.45    +0.12%    -3.07%
 Warsaw                2292.88   2291.59    +0.06%    -6.84%
 Bucharest             8992.21   8957.03    +0.39%   +15.97%
 Ljubljana  <.SBITOP    836.80    838.29    -0.18%    +3.77%
 Zagreb                1781.63   1781.25    +0.02%    -3.32%
 Belgrade   <.BELEX1    741.91    739.95    +0.26%    -2.35%
 Sofia                  657.24    659.10    -0.28%    -2.98%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7500   -0.0800   +129bps     -8bps
   5-year   <CZ5YT=R    1.2220    0.0140   +122bps     +1bps
   10-year  <CZ10YT=    1.7420   -0.0150   +111bps     -1bps
   2-year   <PL2YT=R    1.5350    0.0050   +207bps     +1bps
   5-year   <PL5YT=R    2.4030    0.0040   +241bps     +0bps
   10-year  <PL10YT=    3.0920    0.0030   +246bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.05      1.20      0.90
 Hungary                  0.07      0.10      0.18      0.03
 Poland                   1.73      1.74      1.77      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest and Jason
Hovet in Prague
Editing by Matthew Mpoke Bigg)
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