July 3, 2018 / 2:55 PM / 9 months ago

CEE MARKETS-Forint rebounds from record low, Hungarian debt yields jump

    * German political deal, yuan rebound improves regional mood
    * Forint off record lows, Hungarian yield curve rises,
    * Cbank does not comment on forint after non-rate meeting
    * Hungarian cbank may work on policy change plan-analyst

 (Recasts with Hungarian central bank meeting, new comments,
Romania's upcoming rate meeting)
    By Sandor Peto
    BUDAPEST, July 3 (Reuters) - The forint jumped on Tuesday on
speculation Hungary's central bank (NBH) could design a plan to
stabilise the currency after it hit record lows against the euro
in recent days.
    Global capital flows into the dollar and rising interest
rates have knocked down assets in emerging markets in the past
two months.
    In Central Europe, Hungary and Poland have been the worst
hit as their monetary policies have been loose, with a regional
pick-up in inflation appearing to catch out the Hungarian
central bank.
    After a fall in the forint and a surge in government debt
yield, the bank has refocused its rhetoric on inflation
targeting in the past few weeks and sounded less dovish.
    The forint, however, has touched record lows amid fears of a
global trade war and economic slowdown and some speculation that
its weakness - which adds to inflation - may push the National
Bank of Hungary (NBH) into monetary policy tightening.
    Government bond yields were fixed 10-17 basis points higher
 on Tuesday, with their curve flattening, and the
forint rebounded from Monday's record lows of 330.70 against the
euro early in the session.
    It retained its gains late in the session, also helping bond
yields to retreat, even though the NBH's non-rate-setting
meeting passed without any comment from the bank about the
recent market jitters.
    At 1405 GMT, the forint was trading at 326.75, up 1.1
percent from Monday. Three-year bonds traded at a yield of 2
percent, down from 2.08 percent earlier in the session.
    The forint outperformed the zloty, which firmed a
quarter of a percent as Monday's German deal to save the ruling
coalition and the yuan's rebound improved mood in
emerging markets, also lifting Central European stocks.
    Some foreign banks started to rewind forint short positions
after NBH Deputy Governor Marton Nagy told parliament late on
Monday that price stability was the bank's only anchor, market
participants said.
    "Connecting the dots, the market has started to price in
that the bank may be putting together a plan for some kind of a
policy change," said ING analyst Peter Virovacz.
    Worries remained that pressure on the region's assets may
return if the dollar continues to rally, sapping away funds from
the rest of the world.
    The fragility of Tuesday's rebound in regional markets was
indicated by a slide in the Czech crown to an 11-month
low as investors closed positions ahead of a long week-end which
will start with a national holiday on Thursday.
    The leu was steady at 4.6635 ahead of the Romanian
central bank's meeting on Wednesday, where it may increase its
interest rates further.
    The bank has already allowed liquidity to tighten in
domestic markets and may have even bought the leu in the spot
market to defend it in the past weeks, Erste analyst Horia
Braun-Erdei said in a note.
            CEE       SNAPSHOT   AT                         
            MARKETS             1605 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.1300   26.0820    -0.18%    -2.25%
 crown      >                                       
 Hungary    <EURHUF=  326.7500  330.4300    +1.13%    -4.85%
 forint     >                                       
 Polish     <EURPLN=    4.3930    4.4035    +0.24%    -4.93%
 zloty      >                                       
 Romanian   <EURRON=    4.6635    4.6625    -0.02%    +0.35%
 leu        >                                       
 Croatian   <EURHRK=    7.3850    7.3863    +0.02%    +0.61%
 kuna       >                                       
 Serbian    <EURRSD=  118.0000  117.9700    -0.03%    +0.42%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1075.28  1070.500    +0.45%    -0.27%
 Budapest             36045.72  35867.75    +0.50%    -8.46%
 Warsaw                2154.91   2119.31    +1.68%   -12.45%
 Bucharest             8051.16   8020.17    +0.39%    +3.84%
 Ljubljana  <.SBITOP    869.25    873.99    -0.54%    +7.80%
 Zagreb                1800.96   1804.67    -0.21%    -2.27%
 Belgrade   <.BELEX1    737.45    739.37    -0.26%    -2.94%
 Sofia                  625.48    626.80    -0.21%    -7.67%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.2960    0.1350   +199bps    +13bps
   5-year   <CZ5YT=R    1.6210    0.0400   +192bps     +3bps
   10-year  <CZ10YT=    2.2170    0.0610   +192bps     +6bps
   2-year   <PL2YT=R    1.6710    0.0400   +236bps     +3bps
   5-year   <PL5YT=R    2.6270    0.0620   +293bps     +6bps
   10-year  <PL10YT=    3.3040    0.0690   +300bps     +7bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.17      1.29      1.43      1.16
 Hungary                  0.83      1.07      1.31      0.28
 Poland                   1.75      1.79      1.85      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Radu Marinas in Bucharest and Jason
Hovet in Prague; Editing by Louise Heavens and Mark Potter)
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