May 16, 2018 / 3:43 PM / 6 months ago

CEE MARKETS-FX, bonds rebound, Polish central bank holds fire

    * Polish central bank chief reiterates loose policy stance
    * Zloty leads currency firming, Czech and Polish bond yields
drop
    * Forint rebounds from 23-month low, but central bank is
watched

 (Recasts with Polish central bank meeting, new comments)
    By Sandor Peto and Marcin Goclowski
    BUDAPEST/WARSAW, May 16 (Reuters) - Central European
government bonds and currencies rebounded on Wednesday, losing
their recent link with the euro/dollar as a sell-off in emerging
markets lost steam.
    The Polish central bank kept interest rates on hold as
expected and its governor, Adam Glapinski, reiterated that he
saw no reason to change record-low interest rates until the end
of 2019, and that he would expect "stability" also in 2020.

    The zloty led a firming of regional currencies and
gained 0.3 percent against the euro by 1456 GMT, to trade at
4.2816, off a seven-month low reached at 4.302 on Tuesday.
    The region's currencies and government bonds took a beating
in the past few weeks as a rally of the dollar and U.S. 10-year
debt yields triggered a selloff in emerging markets.
    The dollar reached a five-month high against the euro on
Wednesday, but Central European assets were not sold off this
time, and Turkey's lira also rebounded from record lows.
    One Budapest-based dealer said the forint, which
rebounded from a 23-month low touched at 317.75, to trade at
316.13, had probably got oversold.
    "I did not see stops knocked out, and if the market is short
on forint, it will get saturated," the dealer said.
    Hungarian bonds have taken the hardest beating in the region
in the past few weeks.
    The 10-year yield, after a half percentage point rise since
the end of April, was steady on Wednesday, a touch above 3
percent, while the corresponding Czech and Polish yields eased
slightly.
    Long-term bond yields rose across the region this month as
the 10-year U.S. yield rose above the 3 percent resistance
level, ignoring differences in monetary policy of central banks
in the region.
    While the Czech and Romanian banks are in a rate hike cycle,
their Hungarian and Polish peers have indicated that interest
rates could stay at record low levels for years.
    "We still assume that inflation processes and wage pressure
will intensify this year, but rates will stay unchanged until
late 2019," BZ WBK analysts said in a note after the Polish
central bank's news conference.
    One Budapest-based fixed income trader said a renewed forint
weakening could also trigger further rises in long-term bond
yields.
    "The question is whether the central bank cares about the
forint's weakness and wants to do something about that," the
trader said.
    Hungary's central bank, regarded as one of the most dovish
in the world, will hold a rate-setting meeting next Tuesday.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1656 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5230   25.5600    +0.14%    +0.07%
 crown      >                                       
 Hungary    <EURHUF=  316.1300  316.7500    +0.20%    -1.65%
 forint     >                                       
 Polish     <EURPLN=    4.2816    4.2947    +0.31%    -2.46%
 zloty      >                                       
 Romanian   <EURRON=    4.6335    4.6360    +0.05%    +1.00%
 leu        >                                       
 Croatian   <EURHRK=    7.3840    7.3825    -0.02%    +0.63%
 kuna       >                                       
 Serbian    <EURRSD=  118.1200  118.1200    +0.00%    +0.32%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1106.06  1106.300    -0.02%    +2.59%
                                       0            
 Budapest             37500.17  37663.78    -0.43%    -4.77%
 Warsaw                2273.76   2276.45    -0.12%    -7.62%
 Bucharest             8582.49   8680.35    -1.13%   +10.69%
 Ljubljana  <.SBITOP    897.04    889.51    +0.85%   +11.24%
            >                                       
 Zagreb                1844.19   1846.43    -0.12%    +0.07%
 Belgrade   <.BELEX1    741.97    740.26    +0.23%    -2.35%
            5>                                      
 Sofia                  642.57    643.17    -0.09%    -5.15%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.7190   -0.0540   +127bps     -4bps
            R>                                      
   5-year   <CZ5YT=R    1.3190    0.0260   +133bps     +5bps
            R>                                      
   10-year  <CZ10YT=    1.8450   -0.0450   +123bps     -2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6150    0.0150   +217bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.5030   -0.0500   +252bps     -3bps
            R>                                      
   10-year  <PL10YT=    3.2790   -0.0060   +266bps     +2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.00      1.14      1.27      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.07
                                                    
 Poland                   1.73      1.75      1.83      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Gareth Jones)
  
 
 
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