September 21, 2017 / 1:56 PM / a month ago

CEE MARKETS-Forint hits 4-month low, Hungarian bonds defy Fed signal

    * Zloty also falls as Fed signals balance-sheet tightening
    * Forint slides on loose Hungarian cbank policy
    * Hungarian debt yields hesitate near record lows

 (Recasts with Hungarian T-bill auction, bonds, new comments)
    By Sandor Peto and Jan Lopatka
    BUDAPEST/PRAGUE, Sept 21 (Reuters) - Hungarian government
debt yields fell to new record lows and the forint led Central
European currencies lower on Thursday after the Federal Reserve
signalled balance-sheet tightening and one more rate hike in
2017.
    The Fed's guidance followed monetary easing measures by the
Hungarian central bank (NBH), including a cut in its overnight
deposit rate deeper into the negative.
    Tighter Fed policy would make risky assets in emerging
markets, including the European Union's eastern members,
relatively less attractive, traders said.
    The forint hit 4-month lows, piercing the
psychological line of 310 per euro. At 1331 GMT it traded at
310.55, down 0.6 percent, while the zloty shed 0.3
percent.
    But Hungarian debt prices continued to rally as investors
gave credit to the NBH's pledges that it would push yields
lower, including longer maturities, traders said.
    The government sold 12-month Treasury bills at negative
yields for the first time ever at an auction on Thursday.

    Hungary's 10-year government bond yield was fixed at a new
record low of 2.65 percent, down 6 basis points,
while Poland's corresponding yield rose 3 basis points to 3.344
percent.
    Poland has better credit ratings than Hungary, and Central
European economies are powering ahead. But tension between
Warsaw and Brussels over the rule of law in Poland has weighed
on its asset prices. 
    Societe Generale analyst Régis Chatellier recommended
investors sell or "go underweight" on Polish bonds on Wednesday.

    In a note released on Thursday, Societe strategist Phoenix
Kalen said she saw "compelling reasons" for Hungarian long-term
bonds to perform very well in the coming months on the NBH's
"willingness to introduce targeted instruments", and its
"credibility where yields are concerned". 
    One Budapest-based dealer said the Fed's tightening would
take place over a long period and therefore would not keep the
forint weak.
    "My feeling is that strengthening remains the forint's
natural direction," the dealer added.
    Hungary's economic growth is expected to increase to more
than 4 percent in the second half of the year, Economy Minister
Mihaly Varga told Reuters.            
    Elsewhere, the Czech crown remained steady.
    Last month the Czechs became the first in the European Union
to lift central bank rates since 2012.
    Foreign investors hold big speculative positions in the
crown which could lose value if the shrinking of the Fed's
balance sheet encourages the European Central bank to tighten
its own policies, CSOB analysts said in a note.  
      
               CEE MARKETS  SNAPSH   AT  1531 CET         
                            OT                      
                            CURRENCIES                    
                            Latest  Previo  Daily   Change
                                    us              
                            bid     close   change  in
                                                    2017
 Czech crown                26.100  26.102   +0.01   3.48%
                                 0       0       %  
 Hungary                    310.55  308.55  -0.64%  -0.56%
 forint                         00      50          
 Polish zloty               4.2840  4.2716  -0.29%   2.80%
 Romanian leu               4.5995  4.5967  -0.06%  -1.40%
 Croatian                   7.4810  7.4795  -0.02%   0.99%
 kuna                                               
 Serbian                    119.12  119.11  -0.01%   3.55%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            STOCKS                        
                            Latest  Previo  Daily   Change
                                    us              
                                    close   change  in
                                                    2017
 Prague                     1049.3  1047.3   +0.19   +13.8
                                 2       1       %      6%
 Budapest                   38139.  38108.   +0.08   +19.1
                                15      04       %      7%
 Warsaw                     2471.7  2499.6  -1.12%   +26.8
                                 3       3              9%
 Bucharest                  7904.6  7918.0  -0.17%   +11.5
                                 8       5              7%
 Ljubljana                  801.25  801.22   +0.00   +11.6
                                                 %      6%
 Zagreb                     1829.9  1821.1   +0.49  -8.26%
                                 7       1       %  
 Belgrade                   732.52  728.77   +0.51   +2.11
                                                 %       %
 Sofia                      681.23  677.65   +0.53   +16.1
                                                 %      7%
                            BONDS                         
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                     0.05   0.275   +072b   +27bp
                                                ps       s
   5-year                    0.174   0.059   +043b   +4bps
                                                ps  
   10-year                   1.134    0.06   +068b   +4bps
                                                ps  
 Poland                                                   
   2-year                    1.805   0.035   +248b   +3bps
                                                ps  
   5-year                     2.71   0.038   +297b   +2bps
                                                ps  
   10-year                   3.355   0.038   +290b   +2bps
                                                ps  
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
                                                    interb
                                                    ank
 Czech Rep             <PR    0.71    0.86    0.96       0
               IBOR=>                               
 Hungary               <BU    0.07    0.09   0.115    0.05
               BOR=>                                
 Poland                <WI    1.76    1.82    1.86    1.73
               BOR=>                                
 Note: FRA     are for ask                                
 quotes        prices                               
 *********************************************************
 *****
 
 (Additional reporting by Marcin Goettig in Warsaw; Editing by
Andrew Roche)
  
 
 

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