September 14, 2018 / 9:47 AM / a year ago

CEE MARKETS-Forint firms, bonds steady ahead of central bank meeting

    * Currencies mixed, firming on dollar retreat loses steam
    * Forint extends gains on improved mood over lira
    * Hungarian bonds tread water, central bank might tweak
    * Czech crown tests 4-week highs on rate hike bets

    By Sandor Peto
    BUDAPEST, Sept 14 (Reuters) - The forint set a three-week
high against the zloty on Friday,  buoyed by investors' optimism
that Thursday's big Turkish central bank interest rate hike had
stabilised the lira.
    A spillover from a plunge of the lira's weakness last month
weighed on Central European currencies after jitters caused by a
rally of the dollar in the past six months.
    "The forint, which is quite illiquid, underperformed
(Central European peers) when the lira fell, so it is natural
that it outperforms now," one Budapest-based currency dealer
    The forint traded at its strongest levels against
Poland's zloty since Aug. 21. It was still 3.9 percent weaker
against the euro relative to the end of 2017, while the zloty
was down 3.1 percent.
    The forint, trading near 4-week highs at 323.58
versus the euro at 0857 GMT, was 0.2 percent firmer from
Thursday's close.
    Analysts expect Hungary's central bank to keep rates on hold
at record lows at its meeting on Tuesday.
    But some of them in a Reuters poll said a likely rise in the
bank's inflation forecasts could provide it with a good peg to
spell out some of its plans to start to tighten liquidity in
domestic markets, possibly around the end of 2018. 
    Some analysts said a tweak in the bank's monetary policy
interest rate swaps, which mainly influence long-term market
rates was more likely then a reduction in fx swaps which affect
short-term rates and could boost the forint.
    Hungarian government bonds were treading water after weeks
of a rise in yields. The 10-year paper traded at 3.55 percent.
    "There are bets for both a policy change and no change.
Thus, whatever happens, will cause market movements," one
Budapest-based fixed income trader said.
    Czech and Polish bond yields mostly rose slightly, tracking
Bunds, while Romanian yields were marginally lower after a
strong bond auction on Thursday.
    The crown tested 4-month highs against the euro
amid expectations that the Czech central bank will continue to
increase its interest rates at its Sept. 26 meeting.
    The zloty weakened by 0.1 percent as the impact of
a dollar selling following Wednesday's weaker-than-expected U.S.
inflation data faded ahead of a new set of U.S. economic figures
including retail sales due later on Friday.
    A regional pick-up in inflation in the past months did not
affect Poland, which is due to release August net inflation
figures at 1200 GMT, thus the Polish central bank is unlikely to
shift to less loose policy in the near future.
            CEE       SNAPSHOT   AT                         
            MARKETS             1057 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5110   25.5210    +0.04%    +0.12%
 crown      >                                       
 Hungary    <EURHUF=  323.5800  324.1400    +0.17%    -3.91%
 forint     >                                       
 Polish     <EURPLN=    4.3097    4.3060    -0.09%    -3.09%
 zloty      >                                       
 Romanian   <EURRON=    4.6435    4.6420    -0.03%    +0.78%
 leu        >                                       
 Croatian   <EURHRK=    7.4340    7.4285    -0.07%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  118.1600  118.4100    +0.21%    +0.29%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1091.05  1092.740    -0.15%    +1.20%
 Budapest             36397.04  36156.04    +0.67%    -7.57%
 Warsaw                2241.13   2233.46    +0.34%    -8.94%
 Bucharest             8201.03   8206.00    -0.06%    +5.77%
 Ljubljana  <.SBITOP    854.74    854.90    -0.02%    +6.00%
 Zagreb                1798.12   1798.80    -0.04%    -2.43%
 Belgrade   <.BELEX1    723.31    723.44    -0.02%    -4.80%
 Sofia                  630.01    630.02    -0.00%    -7.00%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.4610    0.0650   +202bps     +8bps
   5-year   <CZ5YT=R    1.8420    0.0310   +203bps     +2bps
   10-year  <CZ10YT=    2.1910    0.0230   +176bps     +1bps
   2-year   <PL2YT=R    1.6240   -0.0080   +218bps     +0bps
   5-year   <PL5YT=R    2.5570    0.0090   +275bps     +0bps
   10-year  <PL10YT=    3.2430    0.0200   +281bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.92      2.11      2.22      1.54
 Hungary                  0.62      0.85      1.07      0.00
 Poland                   1.77      1.78      1.83      1.71
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Keith Weir)
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