July 19, 2018 / 1:47 PM / 8 months ago

CEE MARKETS-Dollar surge hits CEE currencies, Hungarian bond sale

    * Hungary boosts bond offer, demand on long bonds quite weak
    * Dollar's renewed rally weakens CEE currencies, equities
    * Romanian gas price cut plan knocks down Bucharest stock

 (Recasts with result of bond auctions, comments, graphic)
    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, July 19 (Reuters) - Central European
currencies eased and Hungary's government bond auction drew
weaker-than-expected demand on Thursday as the dollar took
centre-stage, reaching a one-year high.
    Dollar strength has prompted waves of selling in emerging
markets including Central Europe in the past months. Upbeat
comments on the U.S. economy from Federal Reserve chief Jerome
Powell earlier this week boosted the greenback again.
    The forint and the zloty, the most
liquid currencies in the European Union's eastern peripheries,
weakened by half a percent against the euro at 1252 GMT.
    Hungary sold government bonds worth 72.5 billion forints at
its auctions, 17.5 billion forints above its original offer.
    Yields dropped from their levels in a sale two weeks ago,
but demand for the 5-year bond, a relatively new paper with low
liquidity, and the 10-year bond was weak.
    The 10-year bond was sold at an average yield of 3.29
percent, and later it traded at 3.35 percent in the secondary
market, up from 5-week lows around 3.26 percent in the morning. 
    Hungary's ultraloose monetary policy and relatively low real
interest rates have made its assets particularly vulnerable to
selling waves driven by the dollar.  
    If the forint, which traded at 325.65 against the euro,
heads towards record lows reached beyond 330 early this month,
concerns over a pick-up in inflation may return, one
Budapest-based fixed income trader said.
    The Hungarian central bank, however, is unlikely to change
its record low interest rates at its meeting on Tuesday or
change its rhetoric significantly, traders and analysts said.
    "(Its statement) will be a copy paste," the trader said.
    Government bonds and equities were mixed in the region.
Stocks indices mostly fell. Bucharest led the decline,
shedding 1.2 percent.
    It was knocked down by OMV Petrom and Romgaz
, which fell 3.3 and 4.1 percent, respectively, after
Romania's government said it planned to lower and cap natural
gas prices by 2021.
    State-owned companies like Romgaz have also been hit by a
requirement to pay higher dividends. Lower gas prices might cut
those state revenues, while they may reduce inflation.
    The plan could negatively affect gas producers, Banca
Transilvania analysts said in a note.
    "Moreover, the draft does not take into consideration any
differences between households and industrial consumers, which
generates an even worse context for local producers than the one
before last deregulation," they added.
    The leu traded steady at 4.657 versus the euro, a
shade weaker from Wednesday.
    The government sold more than planned 2024-expiry bonds at
an auction at an average yield of 4.8 percent, up two basis
points from a sale seven weeks ago.
            CEE       SNAPSHOT   AT                         
            MARKETS             1452 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9110   25.8550    -0.22%    -1.42%
 crown      >                                       
 Hungary    <EURHUF=  325.6500  324.0300    -0.50%    -4.52%
 forint     >                                       
 Polish     <EURPLN=    4.3284    4.3088    -0.45%    -3.51%
 zloty      >                                       
 Romanian   <EURRON=    4.6570    4.6545    -0.05%    +0.49%
 leu        >                                       
 Croatian   <EURHRK=    7.3945    7.3910    -0.05%    +0.48%
 kuna       >                                       
 Serbian    <EURRSD=  118.0400  117.9700    -0.06%    +0.39%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1085.57  1087.360    -0.16%    +0.69%
 Budapest             34862.03  34720.31    +0.41%   -11.47%
 Warsaw                2141.46   2149.12    -0.36%   -12.99%
 Bucharest             7892.95   7990.15    -1.22%    +1.80%
 Ljubljana  <.SBITOP    883.35    882.67    +0.08%    +9.55%
 Zagreb                1794.69   1795.49    -0.04%    -2.61%
 Belgrade   <.BELEX1    735.96    742.52    -0.88%    -3.14%
 Sofia                  624.71    628.47    -0.60%    -7.79%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.0960    0.0680   +174bps     +7bps
   5-year   <CZ5YT=R    1.5390    0.0100   +182bps     +1bps
   10-year  <CZ10YT=    2.1080    0.0050   +177bps     +1bps
   2-year   <PL2YT=R    1.6250    0.0020   +227bps     +1bps
   5-year   <PL5YT=R    2.4870    0.0000   +277bps     +0bps
   10-year  <PL10YT=    3.1390    0.0200   +280bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.44      1.65      1.77      1.19
 Hungary                  0.43      0.63      0.85      0.25
 Poland                   1.73      1.76      1.80      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto, Editing by William Maclean and
Elaine Hardcastle)
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