January 12, 2017 / 3:24 PM / 7 months ago

CEE MARKETS-Polish bonds retreat as ECB seen further tapering stimulus

* Polish bond yields track Bunds higher
    * Polish opposition ends parliament blockade
    * No change seen in Polish credit ratings on Friday
    * Czech markets vibrant as cenbank seen ending crown cap
    * Serbian central bank keeps rates on hold

 (Recasts with ECB taper fears, end of Polish parliament
blockade, Serbian central bank decision)
    By Sandor Peto and Bartosz Chmielewski
    BUDAPEST/WARSAW, Jan 12 (Reuters) - Polish government bonds
retreated on Thursday amid expectations that the European
Central Bank will further taper its economic stimulus in the
euro zone, which has also helped buoy Central European asset
prices.
    November euro zone industrial output data showed
surprisingly strong growth.
    Political risks due to elections in France and Germany are
tainting optimism, but economists unanimously said in a Reuters
poll that the ECB's next move, after April's planned cut in
monthly bond purchases, will be to taper its stimulus further.
 
    Poland's 10-year bond yield, after an initial 7 basis point
fall, tracked a rise in Bund yields and edged up 10 basis points
by 1440 GMT, to trade at 3.577 percent.
    Hungary's corresponding yield dropped 3 basis points from
Wednesday to 3.37 percent, and the forint, firming a
third of a percent against the euro, outperformed the zloty
 which was flat.
    "Hungarian bonds perform better now, but earlier this year
they underperformed Poland," one Budapest-based dealer said.
    Political tension eased in Warsaw as the centrist opposition
ended a month-long blockade in parliament, but a dispute over
the 2017 budget remains unresolved, and further parliament
sessions have been postponed until Jan. 25. 
    There have also been some concerns that Moody's will
downgrade Poland's credit rating in a review on Friday.
    A Reuters poll showed an unanimous expectation of analysts
that both Moody's and Fitch Ratings will leave their ratings and
outlooks on Poland unchanged. 
    Elsewhere, appetite for Czech bonds and other financial
market assets remained unbroken as investors expect the central
bank to remove around the middle of 2017 its cap which keeps the
Czech crown weaker than 27 against the euro.
    "Trade volumes have been massively higher, FX swaps
(turnover is) giant, bonds are big too, IRS (interest rate
swaps) the least up probably," one Prague-based dealer said.
    Czech bonds were mixed after surging on Wednesday as
expectations for exit from the cap pushed the yield at an
auction of 2018 bonds to a record low. 
    The dinar eased a shade to 123.85 against the euro
after the Serbian central bank kept the region's highest
interest rates on hold.
    Annual inflation, at 1.6 percent in December, is still near
the low end of the bank's 1.5-4.5 percent target range, but the
bank did not cut rates, as the bank is worried that a rise in
U.S. interest rates could cut appetite for emerging market
assets. 
    
              CEE        SNAPS   AT  1541          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02   +0.0  -0.05
                            00     45     2%      %
 Hungary                 307.2  308.2   +0.3  0.52%
 forint                    200    400     3%  
 Polish                  4.373  4.372  -0.03  0.70%
 zloty                       1      0      %  
 Romanian                4.490  4.496   +0.1  0.99%
 leu                         5      6     3%  
 Croatian                7.535  7.553   +0.2  0.27%
 kuna                        0      5     5%  
 Serbian                 123.8  123.8  -0.04  -0.40
 dinar                     500    000      %      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  928.7  927.9   +0.0   +0.7
                             7      3     9%     8%
 Budapest                33015  32972   +0.1   +3.1
                           .63    .20     3%     6%
 Warsaw                  2040.  2030.   +0.4   +4.7
                            05     64     6%     3%
 Bucharest               7187.  7238.  -0.71   +1.4
                            02     70      %     4%
 Ljubljana               741.4  745.9  -0.60   +3.3
                             6      7      %     3%
 Zagreb                  2074.  2078.  -0.19   +4.0
                            75     74      %     1%
 Belgrade     <.BELEX15  714.5  708.2   +0.8  -0.40
              >              0      5     8%      %
 Sofia                   607.7  610.9  -0.52   +3.6
                             9      9      %     4%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -1.26      0  -056b   +0bp
              >              8            ps      s
   5-year     <CZ5YT=RR  -0.32  -0.03   +015  -5bps
              >              2      5    bps  
   10-year    <CZ10YT=R  0.379   0.01   +012   +0bp
              R>                         bps      s
 Poland                                            
   2-year     <PL2YT=RR  2.024  0.028   +273   +3bp
              >                          bps      s
   5-year     <PL5YT=RR  2.885  0.017   +336   +0bp
              >                          bps      s
   10-year    <PL10YT=R  3.593  0.036   +334   +3bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.17    0.1    0.1      0
              PRIBOR=>                        
 Hungary              <   0.38   0.45   0.54    0.3
              BUBOR=>                         
 Poland               <   1.76   1.79  1.865   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 

 (Additional reporting by Robert Muller in Prague/Jakub Iglewski
and Marcin Goettig in Warsaw; Editing by Catherine Evans and
Raissa Kasolowsky)

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