October 16, 2018 / 9:33 AM / in a month

CEE MARKETS-Forint sets two-month high on gold reserves rise

    * Forint hits two-month high vs euro
    * Hungarian central bank wants to increase gold reserves
    * Some may bet on hawkish central bank comments
    * Hungarian rates likely to remain at record lows
    * OTP shares firm, shrug off plan to scrap home savings
subsidies

    By Sandor Peto
    BUDAPEST, Oct 16 (Reuters) - The forint hit a two-month high
against the euro on Tuesday, outperforming other Central
European currencies, after the National Bank Hungary said it
would increase its gold reserves.
    The planned 10-fold rise to 31.5 tonnes is an investment and
"will provide safety and lower risk to Hungary," the central
bank's governor, Gyorgy Matolcsy, told a news conference.
    The bank is expected to keep interest rates at record lows
at its meeting on Tuesday. It revamped its policy
tools last month to prepare for monetary tightening, but did not
indicate any concrete move.
    "The reserves rise can be interpreted, too, as preparation
for worse times," one Budapest-based fixed income trader said,
adding that the news should not affect government bonds but
could strengthen the forint.
    The forint gained to its strongest levels since
Aug. 10, to 322 against the euro, then slipped to 322.15 by 0827
GMT, still up 0.1 percent from Monday.
    The Hungarian 10-year yield, at 3.88 percent, was steady,
not tracking a rise in the corresponding U.S. Treasury yield.
    Last week, Hungary's yield curve became the steepest in at
least 14 years, with the spread between the negative three-month
bill yield and 10-year bonds widening to almost 4 percentage
points.
    The steepening was caused by a jump in U.S. yields, coupled
with worries that the central may not give up its loose policy
in time to combat rising inflation.
    The increased yields drew robust demand at the government's
latest auctions, on Thursday, as views over risks are mixed, the
trader said.
    The forint-denominated government bond holding of foreign
investors is near its highest since 2015.
    "Some investors think the yields became attractive, but
others sell off the bonds," the trader said.
    A Budapest-based currency dealer said the forint may have
gained because of bets that the central bank will say something
about its plans for future monetary tightening in its comments
after the rate decision, which is due at 1200 GMT.
    A rise in the region's main equities indices, after a slump
last week to multi-week lows, indicated that international
sentiment improved, market participants said.
    Budapest's and Warsaw's indices gained
almost 1 percent, with the former helped by a rise in the stocks
of OTP, the region's biggest independent lender.
    The stock drifted further off the 10,000-forint
psychological level even though Hungary's parliament started to
discuss a plan to end state subsidies to home savings bank
deposits.
    OTP is a key player in that market, but its fee revenues and
dividends from the segment is a fraction of its other revenues,
Equilor brokerage chief analyst Noemi Holecz said. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1027 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8050   25.8130    +0.03%    -1.02%
 crown      >                                       
 Hungary    <EURHUF=  322.1500  322.6000    +0.14%    -3.49%
 forint     >                                       
 Polish     <EURPLN=    4.2926    4.2918    -0.02%    -2.71%
 zloty      >                                       
 Romanian   <EURRON=    4.6660    4.6621    -0.08%    +0.29%
 leu        >                                       
 Croatian   <EURHRK=    7.4140    7.4155    +0.02%    +0.22%
 kuna       >                                       
 Serbian    <EURRSD=  118.0700  118.2800    +0.18%    +0.36%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1084.26  1081.070    +0.30%    +0.57%
                                       0            
 Budapest             36863.17  36564.15    +0.82%    -6.38%
 Warsaw                2190.34   2170.05    +0.94%   -11.01%
 Bucharest             8498.63   8441.69    +0.67%    +9.61%
 Ljubljana  <.SBITOP    820.35    829.19    -1.07%    +1.73%
            >                                       
 Zagreb                1775.42   1779.92    -0.25%    -3.66%
 Belgrade   <.BELEX1    738.02    738.45    -0.06%    -2.87%
            5>                                      
 Sofia                  609.94    610.75    -0.13%    -9.97%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.5840   -0.0130   +217bps     -3bps
            R>                                      
   5-year   <CZ5YT=R    1.8690    0.0140   +196bps     +1bps
            R>                                      
   10-year  <CZ10YT=    2.1810    0.0160   +167bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5790   -0.0140   +217bps     -3bps
            R>                                      
   5-year   <PL5YT=R    2.5570    0.0150   +264bps     +1bps
            R>                                      
   10-year  <PL10YT=    3.2350   -0.0010   +273bps     +0bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.05      2.24      2.37      1.75
            <PRIBOR=                                
            >                                       
 Hungary                  0.46      0.76      1.11      0.17
                                                    
 Poland                   1.76      1.80      1.89      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Editing by Larry King)
  
 
 
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