March 25, 2019 / 3:15 PM / 4 months ago

CEE MARKETS-Forint hits 4-week low on C/A, bond rally loses steam

    * Forint eases as current account surplus shrinks some more
    * German PMI dims export outlook; better Ifo doesn't help
    * Economic growth worry cuts odds of Hungary monetary
    * Hungarian bond rally stops ahead of Tuesday's cbank

 (Recasts with bonds, graphic)
    By Sandor Peto
    BUDAPEST, March 25 (Reuters) - The forint hit a four-week
low against the euro on Monday as weak Hungarian current account
figures for the last quarter of 2018 added to worries over
economic growth.
    A surprise improvement in Germany's Ifo business morale
reduced recession fears sparked by Friday's German manufacturing
data in the European Union's biggest economy and a main market
of Central Europe's exports.
    But Hungary's quarterly current account deficit widened more
than expected, reducing the full-year surplus to 640 million
euros in 2018, down from 3.45 billion euros in 2017 and 7.04
billion euros in 2016.
    "This is ruining a big forint-strengthening factor," Erste
analysts said in a note.
    The forint traded at 316.95 against the euro at
1431 GMT, weaker by 0.2 percent, while Central Europe's most
liquid unit, the zloty firmed a shade to 4.296.
    Hungarian government bond yields took a breather ahead of a
meeting of the National Bank of Hungary on Tuesday.
    The 10-year benchmark paper traded at 2.92 percent.
    The yield jumped early this month as the underlying paper
was replaced with one with a longer maturity, but it has plunged
about 30 basis points since the middle of March.
    It tracked a rally in bond prices in developed markets as
U.S. Treasuries priced out a future Federal Reserve rate rise.
    Along with recent weak euro zone economic data, that also
helped Germany's 10-year Bund yield decline below zero.
    Hungary's corresponding bonds narrowed the spread with
    Poland's 10-year bond yield, meanwhile widened their spread
with Bunds as the government there, ahead of European Parliament
and national elections, prepares for fiscal stimulus.
    Hungary also increases spending on family benefits, but
unlike the Polish central bank, Hungarian rate-setters are seen
to start to tighten policy this year to fight inflation.    
    Long-term Hungarian bonds got support from expectations for
a rise in the NBH's -0.15 percent overnight deposit rate at the
central bank's meeting (NBH) on Tuesday.
    But the worries over global growth and expectations for low
interest rates to stay longer in the world may discourage
monetary tightening in Budapest as well, traders said.
    "If (the NBH) does nothing this time, that could mean some
upset in credibility," one Budapest-based fixed income trader
said, adding that bond yields would still not rise much.
    "Core markets are kind of crazy, Bund yields are even in the
negative... The Fed and the ECB have arranged it for the NBH
that they may do nothing," the trader said, adding that the
NBH's weekly fx swap tender did not provide any guidance.

    Elsewhere, Romania sold a more than planned amount of
2031-expiry bonds.
            CEE       SNAPSHOT   AT                         
            MARKETS             1531 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7650   25.7600    -0.02%    -0.23%
 crown      >                                       
 Hungary    <EURHUF=  316.9500  316.4200    -0.17%    +1.30%
 forint     >                                       
 Polish     <EURPLN=    4.2960    4.2985    +0.06%    -0.15%
 zloty      >                                       
 Romanian   <EURRON=    4.7580    4.7531    -0.10%    -2.19%
 leu        >                                       
 Croatian   <EURHRK=    7.4148    7.4275    +0.17%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.0000  117.9800    -0.02%    +0.25%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1075.20  1079.350    -0.38%    +8.98%
 Budapest             41524.73  41931.67    -0.97%    +6.10%
 Warsaw                2306.73   2319.10    -0.53%    +1.32%
 Bucharest             7973.24   8031.50    -0.73%    +7.98%
 Ljubljana  <.SBITOP    871.83    874.19    -0.27%    +8.40%
 Zagreb                1793.68   1801.45    -0.43%    +2.57%
 Belgrade   <.BELEX1    730.16    729.48    +0.09%    -4.14%
 Sofia                  582.66    582.34    +0.05%    -1.98%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8500   -0.0300   +241bps     -3bps
   5-year   <CZ5YT=R    1.8150   -0.0300   +224bps     -4bps
   10-year  <CZ10YT=    1.8570   -0.0050   +187bps     -1bps
   2-year   <PL2YT=R    1.6350   -0.1020   +220bps    -11bps
   5-year   <PL5YT=R    2.1850    0.0030   +261bps     +0bps
   10-year  <PL10YT=    2.8430    0.0060   +286bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.11      2.13      2.12      2.03
 Hungary                  0.31      0.47      0.62      0.13
 Poland                   1.73      1.73      1.73      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto, editing by Larry King)
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