July 13, 2017 / 1:44 PM / a month ago

CEE MARKETS-Bonds rebound on Yellen, auctions draw strong demand

    * Long-term yields drop as Yellen projects slow tightening
    * Comments unlikely to end debt yield rise trend - traders
    * Romanian, Czech auctions helped by high market liquidity

 (Adds auction results)
    By Sandor Peto
    BUDAPEST, July 13 (Reuters) - The Czech Republic sold 8-week
Treasury bills at the lowest ever yield and Central European
government paper firmed on Thursday as markets were awash with
money and investors expected slower monetary tightening in the
United States.
    Comments from Federal Reserve Chair Janet Yellen late on
Wednesday signalled that the Fed's rate hikes, which make
Central Europe's debt yields relatively less attractive, could
be glacial, at best.
    Bond yields, which in the past weeks tracked a surge in
10-year Bund yields above 0.5 percent, mostly dropped by a few
basis points in the region's main markets. 
    Hungary fixed its 10-year benchmark yield at 3.09 percent,
down 4 basis points.
    Regional currencies were mixed, with the forint
retreating slightly from off a 4-week high reached against the
euro on Wednesday, while the zloty gained 0.1 percent
by 1326 GMT.
    The Fed comments do not represent a game changer and
investors continue to watch the European Central Bank whose
hawkish comments boosted bond yields in the region and in the
euro zone since late June, one fixed income trader said.
    "The ECB has been trying to calm markets, but it has become
obvious that their loose policy cannot be maintained forever,"
the Budapest-based trader said. 
    While Central European bond yields are mostly higher then
euro zone peers, some of the region's markets are also helped by
good liquidity. Debt auctions held in Budapest, Bucharest and
Prague on Thursday drew robust demand, which pushed yields
lower. 
    The Hungarian central bank has been pumping liquidity into
markets via its unorthodox toolkit in the past year.
    The government sold 12-month Treasury bills at an average
yield of 0.09 percent, down from 0.11 percent at an auction two
weeks ago.
    A Reuters poll of analysts showed on Thursday that the
central bank could keep its record low base rate on hold at
least until the end of 2018 and that the 3-month BUBOR rate
 could rise only marginally in the next 12 months.

    In Romania, large debt redemptions supported government
bonds despite worries that the government's policies will lead
to a jump in the budget deficit and inflation.
    The highest yield at which 19-month bonds were sold at
Romania's auction was 1.22 percent, below Wednesday's closing
bid of 1.28 percent.
    Cash from a Czech Treasury bill redemption in June helped
the country sell 8-week bills at a new yield low of -0.4 percent
at an auction.    
                CEE MARKETS  SNAPSH   AT  1526 CET         
                             OT                      
                             CURRENCIES                    
                             Latest  Previo  Daily   Change
                                     us              
                             bid     close   change  in
                                                     2017
 Czech crown                 26.114  26.104  -0.04%   3.42%
                                  0       5          
 Hungary                     307.00  306.75  -0.08%   0.59%
 forint                          00      00          
 Polish zloty                4.2300  4.2347   +0.11   4.11%
                                                  %  
 Romanian leu                4.5636  4.5657   +0.05  -0.63%
                                                  %  
 Croatian kuna               7.4045  7.4095   +0.07   2.03%
                                                  %  
 Serbian dinar               120.01  120.11   +0.08   2.78%
                                 00      00       %  
 Note: daily    calculated   previo  close   1800          
 change         from         us      at      CET     
                             STOCKS                        
                             Latest  Previo  Daily   Change
                                     us              
                                     close   change  in
                                                     2017
 Prague                      999.83  999.21   +0.06   +8.49
                                                  %       %
 Budapest                    36090.  35872.   +0.61   +12.7
                                 53      46       %      7%
 Warsaw                      2339.6  2341.5  -0.08%   +20.1
                                  1       4              1%
 Bucharest                   8144.8  8171.9  -0.33%   +14.9
                                  5       6              6%
 Ljubljana                   809.17  808.17   +0.12   +12.7
                                                  %      6%
 Zagreb                      1856.6  1861.5  -0.27%  -6.93%
                                  0       6          
 Belgrade                    713.63  715.46  -0.26%  -0.52%
 Sofia                       710.23  711.17  -0.13%   +21.1
                                                         1%
                             BONDS                         
                             Yield   Yield   Spread  Daily
                             (bid)   change  vs      change
                                             Bund    in
 Czech                                               spread
 Republic                                            
   2-year                    -0.165  -0.164   +045b  -17bps
                                                 ps  
   5-year                     0.097    0.05   +020b   +4bps
                                                 ps  
   10-year                    0.962  -0.028   +037b   -4bps
                                                 ps  
 Poland                                                    
   2-year                     1.826  -0.105   +244b  -11bps
                                                 ps  
   5-year                     2.659  -0.009   +276b   -1bps
                                                 ps  
   10-year                    3.329   0.003   +274b   -1bps
                                                 ps  
                FORWARD      RATE    AGREEMENT             
                             3x6     6x9     9x12    3M
                                                     interb
                                                     ank
 Czech Rep              <PR    0.44    0.52    0.61       0
                IBOR=>                               
 Hungary                <BU   0.195   0.225   0.295    0.15
                BOR=>                                
 Poland                 <WI   1.747   1.766   1.809    1.73
                BOR=>                                
 Note: FRA      are for ask                                
 quotes         prices                               
 **********************************************************
 ****
 
 (Additional reporting by Luiza Ilie in Bucharest, Jason Hovet
in Prague; Editing by Alison Williams/Keith Weir)
  
 
 

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