March 23, 2017 / 2:39 PM / 7 months ago

CEE MARKETS-Demand jumps for Czech bills as end of crown cap in sight

    * Czechs sell three times more bills than planned, demand
surges
    * Expectations for crown cap removal buoys demand for Czech
assets
    * Czech central bank balance sheet shows continuing crown
selling
    * Government bonds well-supported across CEE region

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, March 23 (Reuters) - Demand surged for
Czech Treasury bills at an auction on Thursday and the
government sold three times the planned amount, to benefit from
expectations that the central bank will end its "weak crown
regime" soon. 
    The bank launched a cap on the crown's value at 27 against
the euro in 2013 to fight deflation risks.
    Inflation has reached the central bank's two percent target,
and most analysts expect the bank to abandon the cap in April or
May as its hard commitment to keep it until end-March ends.

    It has more than tripled its foreign currency reserves to
defend the cap and fresh data on its balance sheet showed on
Thursday that it probably bought billions of euros in the market
between March 11 and 20.
    The government sold 15.7 billion crowns worth of 27-week
Treasury bills at Thursday's auction as demand surged to 21.2
billion crowns, almost twice as much than in a sale a week ago.
The average yield dropped to -0.56 percent from -0.55 percent.  
 
    The government has stepped up debt sales to benefit from sub
zero yields which may rise after the cap is removed, and
investors mainly seek short-term debt instruments. On Wednesday
the Czechs sold slightly less than planned zero-coupon bonds to
keep the auction yields in the negative.
    "People are looking to place crowns because there is plenty
of money around," one Prague-based fixed income trader said.
    "It is absolutely speculative flow. But I don't know if it
is new money or old money," the trader said, adding that
probably it was probably reinvested money that arrive earlier.
    Another dealer, however, said investors were adding to
earlier positions.
    The crown's implied euro rate in 3-month forwards
 jumped to its strongest level since 2013, to 26.829
earlier this week after Czech President Milos Zeman suggested
that the crown cap may be removed soon. It retreated on
Thursday, to 26.89.
    Czech debt yields are in the negative in shorter maturities
even though they have risen from early-year levels in line with
a rise in Central European bond yields.
    Yields are much higher elsewhere in the region, where
currencies float freely, but retreated in the past two weeks as
expectations for the pace of Fed interest rate hikes have been
scaled back.
    Even Romania's debt auctions showed rising demand this week
even though the government scrapped two bond auctions earlier
this month amid concerns tha5t its budget deficit will rise.
    Poland sold all the bonds planned at an auction on Thursday,
near secondary market yields. Hungary's 10-year
bond yield dropped by 2 basis points to 3.45 percent.   
              CEE        SNAPS   AT  1511          
              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     00     0%      %
 Hungary                 309.0  308.8  -0.05  -0.07
 forint                    500    850      %      %
 Polish                  4.269  4.273   +0.1  3.15%
 zloty                       5      6     0%  
 Romanian                4.554  4.557   +0.0  -0.43
 leu                         5      6     7%      %
 Croatian                7.417  7.410  -0.10  1.86%
 kuna                        5      2      %  
 Serbian                 123.8  123.9   +0.1  -0.39
 dinar                     300    600     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                  980.6  978.9   +0.1   +6.4
                             9      1     8%     1%
 Budapest                32065  31827   +0.7   +0.2
                           .98    .13     5%     0%
 Warsaw                  2219.  2223.  -0.17   +13.
                            95     84      %    97%
 Bucharest               7975.  7969.   +0.0   +12.
                            70     25     8%    57%
 Ljubljana               793.7  792.9   +0.1   +10.
                             8      0     1%    62%
 Zagreb                  2058.  2081.  -1.10   +3.1
                            37     26      %     8%
 Belgrade     <.BELEX15  740.3  745.8  -0.75   +3.2
              >              1      8      %     0%
 Sofia                   636.4  639.7  -0.50   +8.5
                             9      2      %     4%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.37  0.039   +038   +2bp
              >                          bps      s
   5-year     <CZ5YT=RR  0.231  0.075   +056   +7bp
              >                          bps      s
   10-year    <CZ10YT=R  0.994  -0.00   +059  -1bps
              R>                    6    bps  
 Poland                                            
   2-year     <PL2YT=RR  2.048  -0.01   +280  -3bps
              >                     7    bps  
   5-year     <PL5YT=RR  2.969  -0.00   +330  -1bps
              >                     6    bps  
   10-year    <PL10YT=R  3.586  -0.02   +318  -2bps
              R>                         bps  
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.29   0.32   0.41      0
              PRIBOR=>                        
 Hungary              <   0.29   0.36   0.49   0.22
              BUBOR=>                         
 Poland               <  1.765   1.79   1.85   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Bartosz Chmielewski in Warsaw; Editing
by Toby Chopra)
  
 
 

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