January 19, 2018 / 2:55 PM / 2 years ago

CEE MARKETS-Hungarian bond yields jump on IRS tender, forint leads easing

    * Currencies retreat after hitting multi-year highs vs
    * Disappointment over IRS tender boosts Hungarian bond
    * Hungary trying to push down borrowing costs

 (Adds further rise in Hungarian bond yields, Czech parliament
    By Sandor Peto
    BUDAPEST, Jan 19 (Reuters) - Hungary's 10-year government
bond yield hit a two-month high on Friday due to concern that
the central bank's (NBH) new interest rate swap (IRS) facility
will not be as cheap as expected.
    The forint led a weakening of Central European currencies
after their surge to multi-year highs against the dollar made
the greenback more attractive for investors.
    The NBH, one of the most dovish central banks in the world,
launched the IRS programme and mortgage note buying to push
long-term market interest rates lower.
    The first IRS tender, held on Thursday, disappointed. The
offered amount was well below demand and the pricing less cheap
than expected, triggering selling in the domestic IRS market,
tracked by government bonds.
    The yield on 10-year bonds rose 10 basis points on Thursday.
    They added further 10 basis points on Friday, to trade at
2.17 percent, after the NBH said it planned to use the IRS
facility evenly for a long period of time, "with the pricing
conditions revealed at the first auction nearly unchanged".
    "It is uncertain, whether they mean the nominal yield level,
or the spread (over market levels)," one fixed income trader
    The forint jumped to a 3-month high against the
euro on Thursday as the tender suggested that monetary stimulus
may be less aggressive than expected.
    After that spike it turned into a regional underperformer on
Friday against both the euro and the dollar.
    The dollar is labouring near a three-year low against a
basket of global currencies, partly pressured by fears of a
possible U.S. government shutdown.
    The forint and the zloty reached three-year highs and the
Czech crown a record high against the greenback earlier this
week, and on Friday they were knocked off those levels.
    The selling also weakened them in their euro crosses.
    The forint led the fall, shedding half a percent against the
euro, to trade at 309.40 at 1431 GMT. The leu eased
0.2 percent, while the zloty and the Czech crown
 weakened by 0.1 percent.
    The Czech central bank (CNB) may deliver its third hike
since August at its February meeting. A member of its board,
Tomas Nidetzky was quoted as saying on Friday that two hikes
this year could be sufficient.
    The Czech lower house voted on Friday to allow prosecution
of Prime Minister Andrej Babis in a case of alleged EU subsidy
fraud. But investors usually ignore political developments in
the Czech Republic.
            CEE       SNAPSHOT   AT                         
            MARKETS             1531 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3930   25.3600    -0.13%    +0.59%
 crown      >                                       
 Hungary    <EURHUF=  309.4000  307.9500    -0.47%    +0.49%
 forint     >                                       
 Polish     <EURPLN=    4.1688    4.1652    -0.09%    +0.18%
 zloty      >                                       
 Romanian   <EURRON=    4.6595    4.6520    -0.16%    +0.43%
 leu        >                                       
 Croatian   <EURHRK=    7.4340    7.4400    +0.08%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  118.4400  118.4300    -0.01%    +0.05%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1121.38  1119.050    +0.21%    +4.01%
 Budapest             39871.80  39663.92    +0.52%    +1.26%
 Warsaw                2600.35   2591.22    +0.35%    +5.65%
 Bucharest             8361.90   8374.67    -0.15%    +7.84%
 Ljubljana  <.SBITOP    832.40    831.33    +0.13%    +3.23%
 Zagreb                1873.57   1873.87    -0.02%    +1.67%
 Belgrade   <.BELEX1    775.29    773.33    +0.25%    +2.04%
 Sofia                  709.96    711.20    -0.17%    +4.80%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.5980    0.0040   +120bps     +2bps
   5-year   <CZ5YT=R    1.0430    0.0140   +118bps     +2bps
   10-year  <CZ10YT=    1.7600   -0.0090   +119bps     -1bps
   2-year   <PL2YT=R    1.5650   -0.0190   +216bps     -1bps
   5-year   <PL5YT=R    2.6390   -0.0180   +278bps     -1bps
   10-year  <PL10YT=    3.3140   -0.0160   +274bps     -2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.01      1.19      1.35      0.77
 Hungary                  0.11      0.18      0.25      0.02
 Poland                   1.75      1.77      1.85      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Robert Muller in Prague/Marcin Goettig
in Warsaw; Editing by Robin Pomeroy)
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