March 22, 2017 / 10:27 AM / 4 months ago

CEE MARKETS-Czech bonds mixed ahead of auction, bucking regional gains

7 Min Read

    * Czech bonds mixed before auction, abundant supply is seen
    * Czech crown retreats in forward contracts implied rates
    * Polish equities lead retreat amid doubt over Trump
stimulus
    * Leu continues to trade near multi-year lows

    By Sandor Peto and Robert Muller
    BUDAPEST/PRAGUE, March 22 (Reuters) - Central European
government bond yields and stocks fell on Wednesday, tracking
global markets, as doubts grew over U.S. President Donald
Trump's plans to stimulate the economy.
    Czech bonds, meanwhile, were mixed before an auction, as the
government steps up debt sales to benefit from low yields. The
abundant supply can weigh on prices despite some speculation the
Czech crown will strengthen.
    Yield may rise, creating more unfavourable conditions for
the government when the central bank abandons its cap on the
currency's value, which has kept the crown weaker than 27 to the
euro since late 2013.
    The bank has pledged to keep the cap until the end of March
and said it could abandon it around the middle of this year.
    The crown's euro exchange rate implied in forward contracts
surged earlier this week after Czech President Milos Zeman
suggested the cap could be removed soon.
    The implied three-month bid rate, which touched
its strongest levels since 2013 on Tuesday, retreated to 26.861
on Wednesday.
    The yield on two-year Czech bonds, often bought in the past
by foreigners betting on a crown surge, dropped 2.9 basis
points, but at -0.429 percent it was near five-week highs.
    The yield on five-year debt rose 3.8 basis points to 0.217
percent, bucking the regional trend.
    With an auction approaching, one dealer said the Czech
government's debt "issuance plans makes the market think it is
in no hurry to purchase bonds when yields are still a bit too
low considering the official rates prospects".
    The dealer said the ZC/2020-series bond on sale traded near
zero yields but the government was unlikely to reach negative
yield at the auction, and the 2026 bond offered was unlikely to
draw heavy demand either.
    "One percent yield for nine-year maturity seems to be
extremely low for us and for the demand side, given the
forecasted rate path by CNB and inflation risks," the dealer
said.
    Poland's 10-year yield dropped 6 basis points to 3.628
percent and Hungary's corresponding yield was lower by 11 basis
points from Tuesday's fixing, at 3.51 percent.
    "Some future cross flows into Czech debt are possible, but I
do not expect any significant impact here," one Budapest-based
fixed income trader said.
    Polish equities, which led a regional rally earlier this
year, led Wednesday's retreat, with Warsaw's blue-chip index
 dropping 1.6 percent by 1000 GMT.
    The zloty eased 0.2 percent against the euro. The
leu shed 0.1 percent, trading near its weakest levels
since mid-2013, which it reached amid concern over an expected
rise in the Romanian budget deficit.
    
              CEE        SNAPS   AT  1100          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02  -0.01  -0.06
                            20     05      %      %
 Hungary                 308.6  308.4  -0.07  0.06%
 forint                    500    250      %  
 Polish                  4.285  4.277  -0.18  2.77%
 zloty                       0      5      %  
 Romanian                4.565  4.558  -0.14  -0.66
 leu                         0      6      %      %
 Croatian                7.410  7.406  -0.05  1.96%
 kuna                        0      0      %  
 Serbian                 123.8  123.9   +0.1  -0.38
 dinar                     200    400     0%      %
 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                  973.5  982.7  -0.93   +5.6
                             5      2      %     4%
 Budapest                31779  32044  -0.83  -0.70
                           .30    .13      %      %
 Warsaw                  2217.  2252.  -1.56   +13.
                            51     57      %    84%
 Bucharest               7979.  7974.   +0.0   +12.
                            22     92     5%    62%
 Ljubljana               797.3  799.6  -0.28   +11.
                             4      1      %    11%
 Zagreb                  2109.  2132.  -1.08   +5.7
                            87     91      %     7%
 Belgrade     <.BELEX15  745.2  747.2  -0.28   +3.8
              >              1      9      %     8%
 Sofia                   638.7  639.3  -0.10   +8.9
                             0      2      %     1%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.43  -0.03   +032  -1bps
              >              6      6    bps  
   5-year     <CZ5YT=RR  0.221  0.042   +055   +8bp
              >                          bps      s
   10-year    <CZ10YT=R  1.006  -0.03   +059   +1bp
              R>                    4    bps      s
 Poland                                            
   2-year     <PL2YT=RR  2.076  -0.04   +283  -3bps
              >                     8    bps  
   5-year     <PL5YT=RR  3.001  -0.03   +333   +0bp
              >                     3    bps      s
   10-year    <PL10YT=R  3.645  -0.04   +323   +0bp
              R>                    9    bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.29   0.32    0.4      0
              PRIBOR=>                        
 Hungary              <    0.3   0.39   0.54      0
              BUBOR=>                         
 Poland               <   1.77    1.8   1.85   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Radu Marinas in Bucharest, editing by
Larry King)
  
 
 

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