June 12, 2019 / 9:27 AM / 13 days ago

CEE MARKETS-Leu eases though CPI remains high; bonds mostly firm

    * Currencies fall in profit-taking after rally
    * Romania's May inflation is higher than expected
    * Romanian central bank could tighten leu liquidity
    * Czech bond auction is seen drawing solid demand

    By Sandor Peto
    BUDAPEST, June 12 (Reuters) - Central European currencies
and stocks mostly fell as risk aversion increased amid the
threat of the U.S.-China trade war and the approach of U.S.
inflation data.
    The leu failed to benefit from higher-than-expected May
inflation. The crown also weakened after Tuesday's
Czech inflation data showed a pick-up, and was steady on
Wednesday.
    The region's main currencies rose to multi-week or
multi-month highs against the euro in recent weeks as
expectations for Federal Reserve interest rate cuts led to a
selling of the dollar. But the dollar's weakening slowed
by this week.
    The forint fell 0.2% against the euro on
Wednesday, to trade at 321.76 at 0828.
    The zloty and the leu shed 0.1%, with
the latter remaining near five-month highs, trading at 4.724.
    "This easing is not big, and following the past weeks'
surge, it is normal," one Budapest-based dealer said.       
    Romania's annual inflation was steady at 4.1% percent in
May, above the central bank's 1.5% to 3.5% target range and
forecasts.
    Inflation could retreat somewhat by the year-end. But the
central bank will need to fight high core inflation, using its
variable rate tenders to stem a likely rise in liquidity in leu
markets in coming months, ING Bank said in a note.
    "Given the global context, the probability for rate hikes
... is very low," the note said.
    Romanian bonds were mixed, with the yield on two-year debt
bid lower by 6 basis points at 3.45% and the 10-year yield
rising 9 basis points to 4.75%.
    Expected Fed rate cuts and continuing loose monetary policy
in the euro zone also fuelled uncertainty over Czech interest
rates.
    Czech forward rate agreements price in rate cuts, but some
analysts believe the Czech central bank's next move will be its
ninth rate increase since 2017, to fight inflation.
    Czech government bonds with 2016 and 2033 expiry offered at
an auction on Wednesday are expected to draw solid demand
because supply can dry up in the summer, Komercni Banka traders
said in a note.
    A drop in primary supply is also a risk in Hungary, which 
sold 529 billion forints ($1.87 billion) worth of a new
high-yield retail savings bond in a week, the biggest weekly
outflow ever recorded.
    "The debt agency AKK will want to see how it goes in the
next weeks, and if they change financing policy, more FX bond
repurchases is one of the options," one Budapest-based bond
trader said.
    Hungarian government bond yields dropped 2 to 3 basis
points, tracking Bunds, with the 10-year bond trading around
2.81%.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1028 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6210   25.6240    +0.01%    +0.34%
 crown      >                                       
 Hungary    <EURHUF=  321.7600  321.0500    -0.22%    -0.21%
 forint     >                                       
 Polish     <EURPLN=    4.2650    4.2628    -0.05%    +0.58%
 zloty      >                                       
 Romanian   <EURRON=    4.7240    4.7201    -0.08%    -1.48%
 leu        >                                       
 Croatian   <EURHRK=    7.4100    7.4135    +0.05%    +0.00%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  118.0100    +0.09%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1056.68  1061.890    -0.49%    +7.11%
                                       0            
 Budapest             40866.35  41234.66    -0.89%    +4.41%
 Warsaw                2281.60   2295.60    -0.61%    +0.22%
 Bucharest             8659.65   8633.12    +0.31%   +17.28%
 Ljubljana  <.SBITOP    871.28    871.97    -0.08%    +8.33%
            >                                       
 Zagreb                1922.65   1910.46    +0.64%    +9.94%
 Belgrade   <.BELEX1    732.31    731.70    +0.08%    -3.86%
            5>                                      
 Sofia                  580.90    580.34    +0.10%    -2.28%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7150    0.1400   +237bps    +14bps
            R>                                      
   5-year   <CZ5YT=R    1.5230   -0.0080   +211bps     -1bps
            R>                                      
   10-year  <CZ10YT=    1.6510    0.0050   +189bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6560    0.0020   +232bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.0430    0.0060   +263bps     +1bps
            R>                                      
   10-year  <PL10YT=    2.5390   -0.0100   +277bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.17      2.08      2.00      2.17
            <PRIBOR=                                
            >                                       
 Hungary                  0.29      0.44      0.52      0.18
                                                    
 Poland                   1.74      1.73      1.73      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Radu Marinas in Bucharest, Jason Hovet
in Prague and Alicja Ptak in Warsaw; editing by Larry King
)
  
 
 
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