January 18, 2018 / 10:13 AM / a year ago

CEE MARKETS-Hungarian bonds firmer, awaiting cbank IRS stimulus

    * Hungarian central bank launches IRS tool to push down
    * Hungarian bond auction yields may fall despite global rise
    * Polish, Czech stock indices touch multi-year highs

    By Sandor Peto
    BUDAPEST, Jan 18 (Reuters) - Hungarian government bond
yields eased mildly, bucking a global rise, ahead of the
National Bank of Hungary's (NBH) first interest rate swap (MIRS)
auctions to push long-term interest rates lower.
    The NBH, on of the most dovish central banks in the world,
has also launched a mortgage-bond buying programme.
    Its policy to extend stimulus stands in contrast with
monetary tightening in fellow Central European states, the Czech
Republic and Romania which have followed the Federal Reserve's
interest rate hikes due to concerns over a rise in inflation. 
    Inflation in Hungary, and Poland has remained well within
their targets.
    The NBH's 5- and 10-year swap auction will follow the
government's bi-weekly bond auctions, and if it sells over 100
billion forints ($396.23 million) at a wide spread below the
market, interest rate swaps (IRS) and long-term debt yields can
fall in the market.
    "You can feel, that the bond auctions will be good," one
Budapest-based fixed income trader said.
    IRSs traded at 0.8 percent for 5 years and 1.5 percent for
10 years early in the session, unchanged from Wednesday, while
bond yields for the same expiries were a tad lower, at 0.99
percent and 1.95 percent, respectively, traders said. 
    Hungarian yields are around record lows along the curve.
    If the 10-year yield closes a less than 20 basis points
spread over the corresponding Czech bond, Hungary will have the
lowest yield curve among Central European countries which have
not introduced the euro.
    Another trader said Thursday may not be the session when
Hungarian long-term yields could fall further significantly as
the global sentiment did not support such a move.
    Euro zone yields headed back towards recent multi-year highs
on Thursday due to a sell-off in U.S. Treasuries and new supply
from France, Spain and Austria.
    Polish and Czech yields also rose mildly.
    European stocks markets were mixed despite a rise in Asian
stocks after a rally in Wall Street, and Warsaw's and
Prague's stock indices quickly gave up ground after
hitting multi-year highs in early trade.
    In regional currency markets, the forint firmed
0.1 percent to 308.3 against the euro by 0932 GMT, before the
government's bond auction, approaching 3-month highs.
    The leu traded slightly stronger, after Romania's 
ruling Social Democrat party and its ardent critic, the
country's president agreed that Viorica Dancila will be the next
Romanian prime minister.
    The deal averts the risk of a long-drawn political crisis.
            CEE       SNAPSHOT   AT                         
            MARKETS             1032 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3950   25.3930    -0.01%    +0.58%
 crown      >                                       
 Hungary    <EURHUF=  308.3000  308.6200    +0.10%    +0.85%
 forint     >                                       
 Polish     <EURPLN=    4.1642    4.1690    +0.12%    +0.29%
 zloty      >                                       
 Romanian   <EURRON=    4.6485    4.6500    +0.03%    +0.67%
 leu        >                                       
 Croatian   <EURHRK=    7.4330    7.4275    -0.07%    -0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.4200  118.4000    -0.02%    +0.07%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1112.97  1115.630    -0.24%    +3.23%
 Budapest             39680.24  39543.26    +0.35%    +0.77%
 Warsaw                2600.77   2600.37    +0.02%    +5.67%
 Bucharest             8366.33   8316.59    +0.60%    +7.90%
 Ljubljana  <.SBITOP    827.70    829.48    -0.21%    +2.64%
 Zagreb                1878.19   1876.37    +0.10%    +1.92%
 Belgrade   <.BELEX1    768.92    770.84    -0.25%    +1.20%
 Sofia                  709.70    709.86    -0.02%    +4.76%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7010    0.0920   +127bps     +9bps
   5-year   <CZ5YT=R    1.0410    0.0020   +117bps     +0bps
   10-year  <CZ10YT=    1.8150    0.0470   +123bps     +3bps
   2-year   <PL2YT=R    1.5990    0.0010   +217bps     -1bps
   5-year   <PL5YT=R    2.6330    0.0170   +276bps     +1bps
   10-year  <PL10YT=    3.3050    0.0150   +272bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.04      1.24      1.38      0.77
 Hungary                  0.09      0.14      0.21      0.02
 Poland                   1.75      1.78      1.85      1.72
 Note: FRA  are for ask prices                              
 ($1 = 252.3800 forints)

 (Additional reporting by Luiza Ilie in Bucharest Editing by
Jeremy Gaunt)
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