July 5, 2018 / 9:07 AM / 18 days ago

CEE MARKETS-Forint firms, good bond auction seen after sharp rebound

    * Hungary sets 2-week high, forint sharply off record lows
vs euro
    * Hungarian bond yields retreat, good demand seen at auction
    * Dollar weakness on yuan stability, good German data helps
    * Leu underperforms after central bank held rates

    By Sandor Peto
    BUDAPEST, July 5 (Reuters) - The forint hit a two-week high
and Hungarian government bonds firmed ahead of an auction as a
stable yuan and robust German industry data buoyed Central
European currencies on Thursday.
    Traders expected the auction to draw good demand, which was
seen unlikely a few days ago when the forint fell to
record lows and Hungarian bond yields surged to multi-year
highs.
    The Hungarian central bank's (NBH) ultra-loose monetary
policy made the forint and local bonds susceptible to selling in
emerging markets due to the dollar's rally in the past months.
    Hungarian assets sharply rebounded while expectations grew
that the NBH was considering strategies to fight inflation risks
boosted by the forint's weakness.
    In wider markets, the Chinese yuan remained steady on
Thursday and the greenback eased versus the euro after
upbeat German industrial order data, all improving sentiment in
Central Europe.
    The zloty was a touch firmer at 4.383 against the
euro at 0807 GMT, and the Czech crown gained a quarter of a
percent, trading around the 26 line at international desks, with
Prague markets closed for a national holiday.
    The forint - no longer the region's worst
performer in 2018 - gained 0.4 percent to 324.25.
    This is two percent firmer than its record lows set at 330.7
on Monday, which fuelled speculation that market pressure could
push the NBH into monetary tightening.
    "One or two percent in one or the other direction, it is not
insignificant now as this can influence how inflation will
behave relative to the (NBH) target (of 2-4 percent)," one
Budapest-based fixed income trader said.
    "The forint determines sentiment. Increased volatility makes
the market repricing expectations again and again... thus we can
expect a good auction now," the trader added.
    The government has offered to sell 50 billion forints worth
of bonds at the bi-weekly auction, a lower amount than
usual in the past months. 
    Hungary's 10-year bond yield, which rose to about 3.8
percent early this week, traded at 3.5 percent, down 9 basis
points from Tuesday's fixing, while the 3-year yield dropped two
basis points to 1.92 percent.
    Elsewhere in the region, the leu continued to underperform,
easing slightly as the Romanian central bank's decision on
Wednesday not to increase its interest rates further
disappointed some investors. 
    Its Governor Mugur Isarescu said monetary conditions were
tighter than its main interest rate suggested.
    "The decision to remain on hold in July was influenced by
(a) rapid increase of ROBOR (interbank interest) rates
," Raiffeisen analyst Silvia Rosca said.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1007 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9980   26.0640    +0.25%    -1.75%
 crown      >                                       
 Hungary    <EURHUF=  324.2500  325.4600    +0.37%    -4.11%
 forint     >                                       
 Polish     <EURPLN=    4.3819    4.3826    +0.02%    -4.69%
 zloty      >                                       
 Romanian   <EURRON=    4.6630    4.6610    -0.04%    +0.36%
 leu        >                                       
 Croatian   <EURHRK=    7.3880    7.3903    +0.03%    +0.57%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  118.0000    +0.10%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Budapest             36525.95  36600.25    -0.20%    -7.24%
 Warsaw                2176.16   2182.51    -0.29%   -11.58%
 Bucharest             7807.65   7899.99    -1.17%    +0.70%
 Ljubljana  <.SBITOP    878.17    877.94    +0.03%    +8.90%
            >                                       
 Zagreb                1796.82   1796.30    +0.03%    -2.50%
 Belgrade   <.BELEX1    736.78    737.12    -0.05%    -3.03%
            5>                                      
 Sofia                  630.02    630.37    -0.06%    -7.00%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Poland                                                     
   2-year   <PL2YT=R    1.6550   -0.0110   +231bps     -3bps
            R>                                      
   5-year   <PL5YT=R    2.5790    0.0030   +284bps     -3bps
            R>                                      
   10-year  <PL10YT=    3.2700    0.0160   +293bps     -2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Hungary                  0.75      1.05      1.28      0.30
                                                    
 Poland                   1.76      1.79      1.85      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto; Editing by Toby Chopra)
  
 
 
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