May 22, 2018 / 3:00 PM / in 10 months

CEE MARKETS-Forint retreats as Hungarian cbank shrugs off turbulence

    * Forint off 23-month lows, bond market remains tense
    * Hungarian central bank holds fire, reaffirms loose policy
    * Forint may weaken past 320/euro soon, bond yields seen

 (Recasts with Hungary's central bank rate decision and
    By Sandor Peto
    BUDAPEST, May 22 (Reuters) - The forint gave up almost all
of its early gains on Tuesday against the euro, edging back
towards 23-month lows as dollar bulls returned in global markets
and Hungary's central bank (NBH) reaffirmed its loose policy
    The forint and Hungarian bonds have been hit particularly
hard among Central European assets this month as the dollar's
rally and a rise in U.S. long-term debt yields triggered a
sell-off in emerging markets.
    The NBH, regarded as one of the most dovish central banks in
the world, kept interest rates on hold at record low levels, and
said it would maintain loose monetary conditions.
    Analysts said the bank's comments indicated that it intended
to wait for jitters to subside in global markets.
    In its statement it noted the jump in bond yields, but said
it would assess it in light of their relevance to its inflation
    Inflation is near the bottom of the bank's 2-4 percent
target range. The forint's weakness is unlikely to boost it,
market participants said.
    The forint traded at 318.4 versus the euro at 1414
GMT, off its early high of 316.31, edging towards Monday's
23-month low at 319.5.
    "I have no doubt that it will cross the 320 line soon, but
what then?" one Budapest-based dealer said.
    "It is caused by the dollar's strength and U.S. yields, and
looking ahead, all factors are in favour of the dollar."
    Hopes that Moody's may upgrade Hungary's credit rating next
week may give some support to Hungarian assets, dealers said.
    The zloty, Central Europe's most liquid currency,
has taken an even bigger beating than the forint, and on Tuesday
stood 2.6 percent weaker against the euro since the end of 2017,
at 4.2896.
    Poland's 10-year government bond yield dropped 8 basis
points to 3.247.
    Hungary's corresponding yield rose 2 basis points to 3.2
    Hungarian bonds have been the worst hit in the region this
month. The 10-year yield has increased by more than 60 basis
points, twice as much as the U.S. yield, approaching the
corresponding Polish yield for the first time in more than two
    Hungary's yield rise was the region's steepest because of a
big decline in the past two years and after heavy supply from
the government debt management agency AKK at its past three bond
auctions, traders said.
    "Looking at the market now, they are lucky if they can sell
50 billion forints worth of bonds on Thursday at the auction
(compared with a 65 billion forint offer)," one Budapest-based
fixed income trader said, adding that yields could rise further.
            CEE       SNAPSHOT   AT                         
            MARKETS             1614 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7040   25.7200    +0.06%    -0.63%
 crown      >                                       
 Hungary    <EURHUF=  318.4000  318.5900    +0.06%    -2.35%
 forint     >                                       
 Polish     <EURPLN=    4.2896    4.2950    +0.13%    -2.64%
 zloty      >                                       
 Romanian   <EURRON=    4.6260    4.6225    -0.08%    +1.16%
 leu        >                                       
 Croatian   <EURHRK=    7.3855    7.3830    -0.03%    +0.61%
 kuna       >                                       
 Serbian    <EURRSD=  118.0400  118.1000    +0.05%    +0.39%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1105.06  1102.150    +0.26%    +2.49%
 Budapest             36477.74  36770.93    -0.80%    -7.36%
 Warsaw                2256.19   2268.39    -0.54%    -8.33%
 Bucharest             8415.14   8260.86    +1.87%    +8.53%
 Ljubljana  <.SBITOP    896.78    897.75    -0.11%   +11.21%
 Zagreb                1859.77   1849.34    +0.56%    +0.92%
 Belgrade   <.BELEX1    743.26    744.23    -0.13%    -2.18%
 Sofia                  644.44    646.24    -0.28%    -4.87%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.9800    0.1080   +158bps    +11bps
   5-year   <CZ5YT=R    1.4300    0.0300   +152bps     +1bps
   10-year  <CZ10YT=    1.9720    0.0220   +142bps     +0bps
   2-year   <PL2YT=R    1.6090   -0.0180   +221bps     -2bps
   5-year   <PL5YT=R    2.5160   -0.0650   +260bps     -9bps
   10-year  <PL10YT=    3.2470   -0.0800   +270bps    -11bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.03      1.19      1.33      0.90
 Hungary                  0.07      0.40      0.52      0.11
 Poland                   1.73      1.76      1.81      1.70
 Note: FRA  are for ask prices                              

 (Additional reporting by Luiza Ilie in Bucharest
Editing by Raissa Kasolowsky)
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