August 25, 2014 / 9:37 AM / in 3 years

CEE MARKETS 2-Expectations of ECB bond-buying give markets a lift

(Adds new prices, quotes)
    * Currencies, bonds, stocks rise on Draghi comments
    * Hungarian bonds may react later-trader

    By Sandor Peto
    BUDAPEST, Aug 25 (Reuters) - Central European markets firmed
up across the board on Monday, helped by expectations that the
European Central Bank (ECB) may launch large-scale asset
    That speculation was triggered by comments made by ECB
President Mario Draghi late on Friday.
    Poland's 10-year benchmark bond yield fell 11
basis points to 3.05 percent, approaching record lows. Traders
said the region's bond markets tracked euro zone bonds as German
, Spanish, Italian and
Portuguese 10-year bond yields hit record lows.
    Polish rate cut expectations also supported bonds, after a
string of economic data confirmed that the economy is recovering
slowing, partly due to the impact of the Russia-Ukraine crisis.
    "We bet on euro zone Japanisation (low market interest
rates) and expect ECB QE (quantitative easing). We are bullish
on Polish bonds," mBank analysts said on Twitter. 
    The reaction was muted in Hungary, where yields dropped 1-3
basis points, with 10-year paper trading at 4.46
percent. Hungary's market is more reliant on foreign investors
than Warsaw's but London markets are closed on Monday, a trader
said, slowing trade in the region.
    "There may be more reaction tomorrow morning or as the U.S.
opens today," the trader said. "Mainly long yields rally, and
the prospect of a 100 billion forint offer at Wednesday's switch
auction may contribute to the lukewarm reaction." 
    Hungary's central bank is expected to keep its 2.1 percent
base rate on hold at its meeting on Tuesday for the first time
after 24 successive cuts.
    Poland's zloty led a firming of the region's
currencies, gaining 0.3 percent against the euro, while the
forint firmed 0.1 percent. The Czech crown and the
Romanian leu gained 0.2 percent.
    UniCredit Tiriac analyst Mihai Patrulescu said the leu was
helped by a large amount of short positions in the market and
end-of-month tax payments by Romanian companies.
    Slovenia's 10-year bond yield was bid at 2.82
percent, the lowest since the country joined the euro zone in
2007, and down 12 basis points from Friday, ahead of a
parliamentary vote later on Monday which is expected to confirm
law professor and political novice Miro Cerar as prime minister.
    Equities mostly firmed in the region, led by a 0.8 percent
rise in Prague's main stock index as the Russian-Ukrainian
crisis, which weighed on regional asset prices earlier this
month, did not escalate further at the week-end.
    Budapest's main stock index firmed by 0.6 percent,
helped by a rise in shares of OTP, a bank with
business in both Russia and Ukraine, which plunged 3 percent
just before Friday's close.
    The stock traded at 4,093 forints, up 1.6 percent.
    "I have no explanation for either the fall or the rebound...
OTP shares have become highly speculative recently," one
Budapest-based equities trader said.
    "It can move anywhere between 3,800 and 4,200 forints, and
after we see how the government package (which will boost the
costs of Hungarian banks this year) unfolds, it may rise above
those levels," the trader said. 
    A Hungarian court on Friday rejected a lawsuit brought by a
small savings bank to challenge a new law mandating refunds to
loan clients. The court postponed a decision about a similar
lawsuit brought by KBC unit K&H on Monday.
    The refunds could cause a cost of about 900 billion forints
($3.8 billion) to the Hungarian banking sector and the
conversion of foreign currency loans into forints, planned by
the government for late this year, could cause further costs.
 *                                                            *
 **************** CEE MARKETS SNAPSHOT AT 1456 CET ************ 
 ************************* CURRENCIES *************************
                            Latest  Previous   Daily   Change  
                            bid     close      change  in 2014 
 Czech crown                 27.825    27.882   +0.20%  -1.77% 
 Hungary forint             313.080   313.270   +0.06%  -5.15% 
 Polish zloty                 4.178     4.191   +0.31%  -0.68% 
 Romanian leu                 4.394     4.401   +0.15%  +1.50% 
 Croatian kuna                7.630     7.629   -0.01%  -0.16% 
 Serbian dinar              117.600   117.660   +0.05%  -2.64% 
 Note: daily change calculated from previous close at 1800 CET 
 **************************** STOCKS **************************
                            Latest   Previous  Daily   Change  
                                     close     change  in 2014 
 Prague                       994.47   986.53   +0.80%  +0.77% 
 Budapest                   17902.64 17802.52   +0.56%  -2.35% 
 Warsaw                      2451.92  2439.03   +0.53%  +1.98% 
 Bucharest                   7042.92  7039.43   +0.05%  +8.72% 
 Ljubljana                    827.78   818.46   +1.14% +29.14% 
 Zagreb                      1855.56  1866.63   -0.59%  +4.22% 
 Belgrade                     625.00   622.98   +0.32% +13.31% 
 Sofia                        550.98   553.79   -0.51% +12.13% 
 ***************************** BONDS **************************
                        Yield    Yield    Spread     Daily     
                        (bid)    change   vs Bund    change in 
 Czech Republic                                      spread    
   2-year                0.186    +0.025   +022bps    +7bps    
   5-year                0.509    -0.022   +033bps    +2bps    
  10-year                1.288    -0.087   +035bps    -4bps    
   3-year                3.270    +0.010   +330bps    +5bps    
   5-year                3.580    -0.010   +340bps    +3bps    
  10-year                4.570    +0.020   +363bps    +7bps    
   2-year                2.255    -0.020   +229bps    +3bps  
   5-year                2.577    -0.104   +240bps    -6bps  
  10-year                3.076    -0.071   +214bps    -3bps  
 ******************* FORWARD RATE AGREEMENTS ******************
                            3x6     6x9    9x12 3M interbank
 Czech Rep                    0.350   0.360  0.360   0.35 
 Hungary                      2.240   2.320  2.400   2.14 
 Poland                       2.230   2.110  2.110   2.63 
 Note: FRA quotes are for ask prices 
 (Additionalo reporting by Radu Marinas in Bucharest and Marja
Novak in Ljubljana; Editing by Toby Chopra)
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