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CEE MARKETS-Romanian bonds buck rebound ahead of elections
December 9, 2016 / 10:48 AM / a year ago

CEE MARKETS-Romanian bonds buck rebound ahead of elections

* Romanian election on Sunday, parties back loose budget
    * Romanian assets buck CEE bond rebound, stock retreat
    * Fears of ECB tapering recede
    * Czech inflation boosts expectations of crown cap removal

 (Adds Polish stocks falling, Czech central bank comments)
    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Dec 9 (Reuters) - Investor caution about
the outcome of Romania's parliamentary election on Sunday kept
leu-denominated government bonds weaker than their Central
European peers on Friday.
    Bonds were still recovering from the European Central Bank's
surprise decisions on Thursday to extend its asset purchases
until end-2017 but slow the pace from April. 
    "Initially, people interpreted (the ECB decisions) as 
tapering, but the comments later cushioned the blow," one
Budapest-based bond trader said.
    Czech, Hungarian and Polish bond yields dropped 1 to 3 basis
points along the curve.
    Romanian yields were steady to higher. The leu 
moved sideways. 
    Romanian stocks firmed slightly, while Polish stocks
 fell 1.3 percent on profit-taking after hitting a
series of multi-month highs this week.
    Analysts said the Bucharest bourse's prospects hinged on
whether the new government pursues plans to list minority stakes
in state-owned energy and transport firms. 
    Both the Romanian Social Democrats (PSD), who lead opinion
polls with 40-44 percent of votes, and the second-placed
National Liberal Party, with 18-27 percent backing, support the
past two years' policy of robust wage hikes and tax cuts.
    Government spending could pick up late this year, boosting
liquidity in markets, which could keep a lid on debt yields. The
European Commission sees the budget deficit, if not reined in,
quadrupling next year to 3.2 percent of economic output.
    "A PSD-led government is more likely to delay fiscal
consolidation than a centre-right National Liberal Party...-led
government," said Economist Intelligence Unit analyst Maximilien
    Bonds could react to external news - ECB bond purchases, Fed
policy - rather than anything internal, at least in the first
part of 2017, one bond trader said.
    A Reuters poll of analysts has indicated that Romania's
central bank is unlikely to react to the fiscal loosening soon,
but by late 2017 it may become the first of the region's main
central banks to hike rates. 
    The ECB's extended stimulus underpinned Wednesday's Polish
central bank comments that a rate hike before 2018 is unlikely,
and the Czech central bank's pledge to remove its ceiling on the
crown's value, at 27 against the euro, around mid-2017.
    The plan got further backing from figures showing a pick-up
in annual inflation to 1.5 percent in November, the highest
since June 2013. 
    "The published figures represent an inflationary risk to the
CNB's current forecast, which assumes that the (weak crown)
exchange rate will be used as a monetary policy instrument until
mid-2017," the bank said.
           CEE         SNAPSHOT   AT  1509 CET                
                       Latest    Previous   Daily    Change
                       bid       close      change   in 2016
 Czech                  27.0320    27.0505   +0.07%     -0.13%
 Hungary               314.6000   314.3350   -0.08%      0.01%
 Polish                  4.4510     4.4449   -0.14%     -4.34%
 Romanian                4.5005     4.4990   -0.03%      0.41%
 Croatian                7.5330     7.5355   +0.03%      1.41%
 Serbian               123.3000   123.3500   +0.04%     -1.48%
 Note:     calculated  previous  close at   1800              
 daily     from                             CET      
                       Latest    Previous   Daily    Change
                                 close      change   in 2016
 Prague                  903.71     899.57   +0.46%     -5.50%
 Budapest              30473.30   30629.48   -0.51%    +27.39%
 Warsaw                 1895.79    1921.08   -1.32%     +1.97%
 Buchares               6886.73    6861.40   +0.37%     -1.68%
 Ljubljan                705.46     703.87   +0.23%     +1.34%
 Zagreb                 1984.17    1988.67   -0.23%    +17.43%
 Belgrade                719.52     717.08   +0.34%    +11.71%
 Sofia                   581.61     579.97   +0.28%    +26.19%
                       Yield     Yield      Spread   Daily
                       (bid)     change     vs Bund  change in
 Czech                                               spread
   2-year                -0.697      0.014   +006bp      +4bps
   5-year                 -0.14     -0.013   +032bp      +5bps
           <CZ10YT=RR     0.563     -0.017   +023bp      +3bps
 10-year   >                                      s  
   2-year                 1.967     -0.031   +272bp      -1bps
   5-year                 2.871      0.003   +333bp      +7bps
           <PL10YT=RR     3.606     -0.011   +328bp      +4bps
 10-year   >                                      s  
           FORWARD     RATE      AGREEMENT                    
                       3x6       6x9        9x12     3M
 Czech             <P      0.28       0.25     0.25          0
 Rep       RIBOR=>                                   
 Hungary           <B      0.37       0.41      0.5        0.4
 Poland            <W     1.755       1.77    1.805       1.73
 Note:     are for                                            
 FRA       ask prices                                

 (Additional reporting by Jason Hovet in Prague/Bartosz
Chmielewski in Warsaw; Editing by Toby Chopra/Ruth Pitchford)

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