February 16, 2017 / 9:55 AM / 5 months ago

CEE MARKETS-Bonds ease, debt auction demand could weaken on Fed

7 Min Read

* Czechs, Hungary, Poland, Romania to hold debt auctions
    * Demand could ease as odds of March Fed rate hike rise
    * Bucharest shares set 19-month high, Transgaz stocks surge
    * Czech 2-year bond yield at 5-month high, speculation eases

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Feb 16 (Reuters) - Central European
government bonds eased ahead of possibly bearish debt auctions
across the region on Thursday amid rising expectations for a
Federal Reserve interest rate hike in March.
     Higher yields in the U.S. would make debt in emerging
markets relatively less attractive.
     Romanian bond yields rose by 2-5 basis points on Wednesday
and their curve steepened "after the above-consensus U.S. CPI
and retail sales numbers led to markets pricing in a higher
probability of a March Fed rate hike," ING analysts said in a
note.
     They said the government "might find it difficult to fill
its purse" at Thursday's 7-year bond auction as the paper on
offer had a low market liquidity.
     The cut-off yield at the auction could be 3.55 percent, a 5
basis point rise from Wednesday's bid in the secondary market,
the note added. 
     Romania's leu touched a two-week low against the
euro. Trading at 4.5235 at 0911 GMT, it was weaker by 0.1
percent from Wednesday.
     Huge anti-government protests caused jitters in Romanian
markets early this month.
     The main index of the Bucharest stock exchange 
underperformed a regional rally, but on Thursday it touched a
19-month high and got near a 9-year high.
    It rose 0.2 percent, in contrast with a retreat of other
indices in the region, with Transgaz stocks surging
5.5 percent after the gas pipeline operator reported a jump in
profits. 
     An auction of Czech 3-month Treasury bills is also likely
to face weaker demand than earlier this year when investors
scrambled to buy Czech assets because the central bank is
expected to remove its cap on the crown's value later this year.
    But central bankers have poured cold water on the frenzy of
speculation for a surge of the crown, saying that the currency
had become seriously overbought.
    The yield on 2-year Czech bonds jumped 19 basis points on
Thursday to -0.361 percent, a 5-month high and 90 basis points
above levels 5 weeks ago.   
    "We expect a little bit shallower (auction) demand, yields
likely to rise above -1.0 percent hurdle this time but showing
nicer pickup against CCS (cross-currency swap) financing,"
Komercni Banka trader Dalimil Vyskovsky said in a note.
    Hungarian yields rose 3-4 basis points ahead of a bond
auction.
    "We expect an average auction (demand), but it may be
followed by selling," one Budapest-based trader said.
     Polish bonds were steady ahead of a government bond auction
in Warsaw.   
    
              CEE        SNAPS   AT  1011          
              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     90     3%      %
 Hungary                 308.1  308.2   +0.0  0.23%
 forint                    000    350     4%  
 Polish                  4.315  4.311  -0.07  2.06%
 zloty                       1      9      %  
 Romanian                4.523  4.519  -0.09  0.25%
 leu                         5      5      %  
 Croatian                7.451  7.455   +0.0  1.40%
 kuna                        0      5     6%  
 Serbian                 123.8  123.9   +0.0  -0.36
 dinar                     000    000     8%      %
 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                  966.9  972.8  -0.61   +4.9
                             1      3      %     2%
 Budapest                33733  33981  -0.73   +5.4
                           .64    .50      %     1%
 Warsaw                  2183.  2184.  -0.04   +12.
                            54     33      %    10%
 Bucharest               7692.  7676.   +0.2   +8.5
                            73     01     2%     8%
 Ljubljana               763.0  762.4   +0.0   +6.3
                             1      4     7%     3%
 Zagreb                  2168.  2166.   +0.0   +8.6
                            16     44     8%     9%
 Belgrade     <.BELEX15  708.8  703.5   +0.7  -1.19
              >              2      2     5%      %
 Sofia                   593.3  593.5  -0.04   +1.1
                             1      6      %     7%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.36  0.191   +043   +19b
              >              1           bps     ps
   5-year     <CZ5YT=RR  0.219  -0.02   +064  -2bps
              >                     2    bps  
   10-year    <CZ10YT=R  0.629  -0.03   +026  -3bps
              R>                    9    bps  
 Poland                                            
   2-year     <PL2YT=RR  2.262  0.019   +305   +2bp
              >                          bps      s
   5-year     <PL5YT=RR  3.215  0.008   +363   +1bp
              >                          bps      s
   10-year    <PL10YT=R  3.888  0.008   +352   +2bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.27    0.3   0.36      0
              PRIBOR=>                        
 Hungary              <    0.4   0.55   0.68   0.24
              BUBOR=>                         
 Poland               <   1.77   1.81  1.905   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Tom Heneghan)

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