January 12, 2018 / 10:21 AM / a month ago

CEE MARKETS-Currencies firm on dollar selling, Hungarian bonds firm

    * Dollar plunge vs euro triggers currency buying in CEE
    * Hungarian bonds firm, Dec inflation was below forecasts
    * Hungarian central bank seen keeping long-term yields low

    By Sandor Peto
    BUDAPEST, Jan 12 (Reuters) - Central European currencies
firmed on Friday as global dollar selling accelerated after
reports that German parties reached a breakthrough in coalition
talks.
    The euro jumped against the dollar as the news added
fuel to a rally driven by expectations that the European Central
Bank could taper its massive monetary stimulus.
    Such expectations have a two-pronged effect on Central
European assets which have been indirectly helped by the ECB's
asset buying and low interest rates.
    Less stimulus could mean less buying force, but rising ECB
rates could nudge the region's central banks towards tighter
policy.
    The forint eased a bit in early trade against the
euro after Hungary's December annual inflation came in at 2.1
percent, below analysts' 2.3 percent forecast and the 3 percent
midpoint of the Hungarian central bank's (NBH) target range.
    But it firmed when the euro jumped to a 3-year high versus
the dollar. The forint traded at 308.63 versus the euro at 0918
GMT.
    "We saw a big wave in dollar selling," one Budapest-based
trader said.
    The zloty and the leu gained 0.1
percent, and the dinar 0.3 percent, moving in the same direction
even though monetary policies diverge in the region.
    Romania's central bank (NBR) delivered its first rate hike
in a decade on Monday, Poland reaffirmed its loose monetary
policy stance, and Serbia kept the region's highest benchmark
rate on hold.
    The NBH, which Citigroup said in a note was "the most dovish
central bank in the world", is expected to loosen policy
further, launching a new interest rate swap facility on Jan. 18.
    "The first IRS auction will be an important guidance of how
much premium the NBH is willing to give to keep the flattening
pressure in the curve," it said.
    Hungarian government bonds took little notice to swings in
global yields this week. Long-term yields continued to drop on
Friday, shedding one basis point, with 10-year papers trading at
1.94 percent.
    Poland's corresponding yield also retreated following a rise
on Thursday, dropping two basis points to 3.32 percent.
    Romania's 10-year yield was bid at 4.32 percent, up one
basis point.
    The country's annual inflation ticked up to 3.3 percent in
December as expected, and could rise above the NBR's 1.5-3.5
percent target range soon.
    A failure by the bank to push it back by late 2018  "would
be a game changer from the perspective of the current
(financial) forecasts in the market," Erste analyst Eugen Sinca
said in a note. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1018 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5250   25.5220    -0.01%    +0.07%
 crown      >                                       
 Hungary    <EURHUF=  308.6300  308.7500    +0.04%    +0.74%
 forint     >                                       
 Polish     <EURPLN=    4.1660    4.1700    +0.10%    +0.25%
 zloty      >                                       
 Romanian   <EURRON=    4.6372    4.6400    +0.06%    +0.92%
 leu        >                                       
 Croatian   <EURHRK=    7.4560    7.4645    +0.11%    -0.34%
 kuna       >                                       
 Serbian    <EURRSD=  118.4100  118.7500    +0.29%    +0.08%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1107.69  1107.680    +0.00%    +2.74%
                                       0            
 Budapest             39788.59  39772.75    +0.04%    +1.04%
 Warsaw                2543.32   2534.56    +0.35%    +3.34%
 Bucharest             8223.56   8167.91    +0.68%    +6.06%
 Ljubljana  <.SBITOP    822.51    819.74    +0.34%    +2.00%
            >                                       
 Zagreb                1861.60   1858.08    +0.19%    +1.02%
 Belgrade   <.BELEX1    770.52    767.80    +0.35%    +1.41%
            5>                                      
 Sofia                  710.04    702.78    +1.03%    +4.81%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.6240    0.0990   +118bps    +10bps
            R>                                      
   5-year   <CZ5YT=R    0.9990    0.0520   +109bps     +3bps
            R>                                      
   10-year  <CZ10YT=    1.7270    0.0520   +121bps     +6bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6350    0.0090   +220bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.6180    0.0030   +271bps     -2bps
            R>                                      
   10-year  <PL10YT=    3.3440   -0.0020   +282bps     +0bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.04      1.22      1.35      0.76
            <PRIBOR=                                
            >                                       
 Hungary                  0.09      0.10      0.21      0.02
                                                    
 Poland                   1.76      1.79      1.87      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Robin Pomeroy)
  
 
 
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