October 10, 2018 / 3:05 PM / 10 months ago

CEE MARKETS-Hungarian yield hits 3-year high, Romanian CPI surprises

    * Hungarian 10-year bond yield is highest since mid-2015
    * Romania Sept CPI at 5 pct vs 4.8 pct analyst forecast
    * Analysts split over Romanian inflation trends

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Oct 10 (Reuters) - Hungary's 10-year
government bond yield hit a 3-year high on Wednesday as a rise
in U.S. Treasuries yields caused concerns in the country which
has Central Europe's lowest short-term interest rates. 
    The middle rate of bids and asks for the Hungarian 10-year
yield reached 3.9 percent, the highest level since
mid-2015, up 6 basis points from Tuesday's fixing.
    The corresponding U.S. Treasuries traded around
3.217 percent, near seven-year highs.
    Worries over Italy's budget deficit also kept euro zone bond
markets under pressure, even though the Italian 10-year yield
 was slightly off 4-1/2-year highs.
    The global rise also pushed Poland's 10-year yield to its
highest level since May, but in the region Hungarian bonds were
the worst hit.
    "Because the central bank (NBH) efficiently keeps short-term
rates low, all tension appears in long maturities," one
Budapest-based trader said.
    The trader added that he could not remember the spread
between short-term market interest rates, which are near zero,
and long-term yields ever being as wide.
    The NBH said last month it was prepared to start monetary
tightening if inflation trends justified such action.
    But it has kept its base rate at 0.9 percent, a record low
and the region's lowest level, and has not tightened liquidity
in domestic markets.
    "Market confidence that the bank will react (to a possible
further rise in inflation) in time has evaporated. It is pricing
in the chance that it will not and whenever sentiment worsens,
our (bond) market gets a beating," the trader said. 
    Hungary on Tuesday reported a surprise pick-up in annual
inflation to 3.6 percent for September, and Romania on Wednesday
published a 5 percent reading which was also above forecasts
which were pegged at 4.8 percent.
    Romanian government bonds were mixed, with the 10-year
paper's yield bid at 5.05 percent, even though the country's
inflation remains the highest in the region and near its highest
level in almost six years.
    Analysts were split on whether the inflation figures would
nudge the Romanian central bank, which has kept market liquidity
relatively tight, towards an interest rate increase after three
hikes this year.
    Ciprian Dascalu, ING's chief economist in Romania, said that
was unlikely to happen.
    "It would be hard for the central bank to revise its
inflation forecast upward based on an upward surprise from
volatile food prices for one month," he said.
    But Erste analyst Dorina Ilasco said the bank might consider
possible future hikes at its Nov. 6 meeting, where it is due to
discuss its new inflation report.
    "In view of today's reading, we revise our inflation
forecast for December 2018 to 3.8 percent y/y, from 3.5 percent
y/y," she said in a note.
    The leu traded steady at 4.664 against the euro at
1419 GMT, while the forint <EURHUF=< shed 0.3 percent, the zloty
 0.2 percent and the Czech crown 0.1 percent.
            CEE       SNAPSHOT   AT                         
            MARKETS             1619 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8450   25.8110    -0.13%    -1.17%
 crown      >                                       
 Hungary    <EURHUF=  325.3000  324.4000    -0.28%    -4.42%
 forint     >                                       
 Polish     <EURPLN=    4.3140    4.3050    -0.21%    -3.19%
 zloty      >                                       
 Romanian   <EURRON=    4.6644    4.6650    +0.01%    +0.33%
 leu        >                                       
 Croatian   <EURHRK=    7.4080    7.4200    +0.16%    +0.30%
 kuna       >                                       
 Serbian    <EURRSD=  118.2700  118.4900    +0.19%    +0.19%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1095.60  1095.780    -0.02%    +1.62%
 Budapest             36926.56  37109.24    -0.49%    -6.22%
 Warsaw                2194.42   2251.32    -2.53%   -10.84%
 Bucharest             8528.31   8545.34    -0.20%    +9.99%
 Ljubljana  <.SBITOP    830.31    836.56    -0.75%    +2.97%
 Zagreb                1770.15   1775.19    -0.28%    -3.95%
 Belgrade   <.BELEX1    732.50    730.75    +0.24%    -3.59%
 Sofia                  617.42    617.13    +0.05%    -8.86%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5040   -0.0290   +205bps     -3bps
   5-year   <CZ5YT=R    1.8690    0.0180   +195bps     +0bps
   10-year  <CZ10YT=    2.1720    0.0070   +161bps     -1bps
   2-year   <PL2YT=R    1.6270    0.0080   +217bps     +0bps
   5-year   <PL5YT=R    2.6110    0.0160   +269bps     +0bps
   10-year  <PL10YT=    3.3090    0.0200   +275bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.02      2.20      2.33      1.75
 Hungary                  0.49      0.81      1.17      0.17
 Poland                   1.78      1.82      1.88      1.72
 Note: FRA  are for ask prices                              

 (Additional reporting by Jason Hovet in Prague; Editing by
Kirsten Donovan and Ken Ferris)
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