May 24, 2018 / 8:58 AM / a year ago

CEE MARKETS-Currencies rebound, bonds mixed ahead of key auctions

    * Zloty, forint, crown rebound from multi-month lows
    * Fed minutes ease pressure on CEE assets
    * Good auction demand seen in Budapest, weak in Bucharest

    By Sandor Peto
    BUDAPEST, May 24 (Reuters) - A retreat of the dollar helped
Central European currencies rebound from multi-month lows on
Thursday ahead of key government bond auctions in Bucharest,
Budapest and Warsaw to test appetite after a sell-off in the
past weeks.
    The zloty firmed 0.3 percent against the euro by
0815 GMT, while the forint was steady at 319.2, still
near the 23-month highs it reached in the previous session.
    Sentiment improved as Wednesday's Federal Reserve minutes
did not suggest that it would accelerate its rate hikes, and
because the Turkish central bank raised its interest rates, even
though its big hike did not prevent a further slide in the lira.
    But markets remain fragile as a rally in the dollar and U.S.
Treasury yields, which fuelled a sell-off in emerging markets in
the past weeks, may resume, market participants said.
    The crown also firmed slightly.
    But trading at 25.827 versus the euro it remained near this
year's weakest levels, even though Czech central bank governor
Jiri Rusnok reiterated late on Wednesday that the bank may
increase rates faster if the crown does not strengthen enough. 
    If the crown continues to weaken, the next support level is
at 25.9, KBC analysts said in a note.
    "The weakening of the crown shows that there is still a lot
of short-term foreign capital parked here, which can pack and
leave quite quickly when the weather changes," they said.
    Weak demand forced the Czech government to cut its offer at
a bond auction on Wednesday.
    Regional bond markets were mixed on Thursday ahead of bond
auctions in Hungary, Poland and Romania, even though the Fed
minutes improved sentiment.
    Poland's 10-year yield dropped further by two basis points
to 3.19 percent, erasing most of its 25 basis point rise earlier
this month from end-April levels.
    Hungary's corresponding yield was steady at 3.13 percent, up
by more than 60 basis points from April, and the surge could
ensure sufficient demand at Thursday's auction, traders and
analysts said.
    Romania's auction of 2031-expiry bonds, an illiquid paper,
could meet weak demand, ING analysts said in a note, even though
a surge in inflation and Romanian central bank rate hikes have
boosted the country's debt yields to 4-year highs.
    Despite worries that the state budget will overshoot its
deficit targets, the leader of the ruling Social Democrats said
late on Wednesday that the government would maintain its wage-
and pension-boosting policies.
    "Demand is likely to be poor (at the auction) and bids to be
spread over a wide range," the ING note said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1015 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8270   25.8400    +0.05%    -1.10%
 crown      >                                       
 Hungary    <EURHUF=  319.2000  319.2100    +0.00%    -2.60%
 forint     >                                       
 Polish     <EURPLN=    4.2963    4.3090    +0.30%    -2.79%
 zloty      >                                       
 Romanian   <EURRON=    4.6245    4.6290    +0.10%    +1.19%
 leu        >                                       
 Croatian   <EURHRK=    7.3900    7.3870    -0.04%    +0.55%
 kuna       >                                       
 Serbian    <EURRSD=  118.1100  118.1300    +0.02%    +0.33%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1109.41  1099.540    +0.90%    +2.90%
 Budapest             35670.83  35456.52    +0.60%    -9.41%
 Warsaw                2233.91   2209.32    +1.11%    -9.24%
 Bucharest             8305.47   8345.65    -0.48%    +7.12%
 Ljubljana  <.SBITOP    899.21    900.61    -0.16%   +11.51%
 Zagreb                1852.50   1851.38    +0.06%    +0.52%
 Belgrade   <.BELEX1    743.66    744.29    -0.08%    -2.12%
 Sofia                  642.90    642.90    +0.00%    -5.10%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.9740    0.0950   +159bps     +9bps
   5-year   <CZ5YT=R    1.4580    0.0530   +158bps     +4bps
   10-year  <CZ10YT=    1.9460    0.0000   +143bps     -2bps
   2-year   <PL2YT=R    1.6180   -0.0010   +223bps     -1bps
   5-year   <PL5YT=R    2.4890   -0.0110   +261bps     -2bps
   10-year  <PL10YT=    3.2250   -0.0020   +271bps     -2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.03      1.19      1.33      0.90
 Hungary                  0.07      0.36      0.45      0.12
 Poland                   1.75      1.77      1.82      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest and Robert
Mueller in Prague, Editing by William Maclean)
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