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CEE MARKETS-Czech bond yields set multi-year highs on rate hike bets
October 25, 2017 / 9:23 AM / 24 days ago

CEE MARKETS-Czech bond yields set multi-year highs on rate hike bets

    * Czech bond yields rise further, highest since 2014
    * Hampl comments underpin rate hike bets, says no big hike
    * Czech, Polish bond sales draw sound demand despite hike
    * Hungarian bonds firm, MOL boosts Budapest stocks to record

 (Adds auction results, Polish rate hike expectations, Budapest
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Oct 25 (Reuters) - Czech bond yields rose
to their highest levels since 2014 on Wednesday after
expectations for a Czech central bank (CNB) interest rate hike
next month were reinforced by comments from a policymaker.
    CNB Vice-Governor Mojmir Hampl said that rates should go up
and that the crown remained overbought.
    The crown reached four-year highs on Tuesday after rate
setter Tomas Nidetzky said that it had not firmed enough to
prevent a tightening and that the bank could consider tripling
its main rate to 0.75 percent when it meets on Nov. 2.

    The currency steadied at 25.588 per euro by 1308 GMT after
Hampl said he preferred a standard, 25 basis-point hike rather
than a bigger step up in borrowing costs.
    The mid-yields on Czech government were at their highest
levels since 2014 according to Reuters data.
    Foreigners bought tens of billions of euros worth of crowns
before the CNB removed its cap keeping the currency weaker than
27 per euro for years.
    Analysts said it will be a tough balancing act for the CNB
to manage its rate hike cycle without discouraging expectations
for more hikes and kicking out a key leg supporting the crown's
    "Whereas we see more CZK (crown) appreciation potential,
given that CZK still remains somewhat undervalued against the
euro, the current speed of appreciation in our view increases
the risks for setbacks," Raiffeisen analysts said in a note.
    "Such a setback could occur when rate hike speculation loses
momentum, or if foreign investors see the scope for additional
CZK appreciation diminishing," the note said.
    Expectations for a central bank rate hike have also been
strengthening in Poland in recent weeks.
    By Wednesday, forward rate agreements (FRA's) were pricing
in an 84 percent chance of a 25 basis point hike in nine months.
    Even though higher rates cut the value of bond investments,
Prague's and Warsaw's government bond auctions drew solid
demand, with the Czech sale also helped by a relatively low
offered amount.
    Polish yields rose slightly after the auction amid concern
that the European Central Bank may shift towards a policy of
less monetary stimulus at its meeting on Thursday, Pekao SA
analyst Arkadiusz Urbanski said.
    Hungarian yields dropped by 1-5 basis points, mainly at the
long end of the curve, after dovish comments on Tuesday from the
Hungarian central bank.
    Budapest's main equities index hit a record low,
boosted by a 2.1 percent rise in MOL after the
European Commission cleared 131 million euros of investment aid
to the oil group from the Hungarian government.
               CEE MARKETS  SNAPSH   AT  1508 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                25.588  25.595   +0.03   5.55%
                                 0       5       %  
 Hungary                    310.00  310.30   +0.10  -0.38%
 forint                         00      00       %  
 Polish zloty               4.2340  4.2457   +0.28   4.01%
 Romanian leu               4.5969  4.5967   +0.00  -1.35%
 Croatian                   7.5160  7.5137  -0.03%   0.52%
 Serbian                    119.48  119.55   +0.06   3.24%
 dinar                          00      00       %  
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1063.7  1051.4   +1.17   +15.4
                                 6       6       %      2%
 Budapest                   39913.  39411.   +1.27   +24.7
                                36      36       %      2%
 Warsaw                     2458.7  2448.4   +0.42   +26.2
                                 1       5       %      2%
 Bucharest                  7852.9  7890.9  -0.48%   +10.8
                                 7       0              4%
 Ljubljana                  804.82  803.99   +0.10   +12.1
                                                 %      6%
 Zagreb                     1882.5  1888.8  -0.33%  -5.63%
                                 7       1          
 Belgrade                   727.55  727.18   +0.05   +1.42
                                                 %       %
 Sofia                      652.30  652.55  -0.04%   +11.2
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.409   0.048   +111b   +5bps
   5-year                    0.832   0.047   +107b   +3bps
   10-year                   1.699   0.018   +120b   -1bps
   2-year                    1.685  -0.019   +239b   -2bps
   5-year                    2.703   0.027   +294b   +1bps
   10-year                   3.445   0.054   +295b   +3bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.89    0.93    1.23       0
 Hungary               <BU     0.1    0.12    0.16    0.03
 Poland                <WI   1.782    1.86   1.953    1.73
 Note: FRA     are for ask                                
 quotes        prices                               
 (Additional reporting by Bartosz Chmielewski and Marcin Goettig
in Warsaw; Editing by Peter Graff and Hugh Lawson)

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