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CEE MARKETS-Ultra-low Czech bond yield near record low as central bank meets
December 22, 2016 / 10:27 AM / a year ago

CEE MARKETS-Ultra-low Czech bond yield near record low as central bank meets

* Czech 2-year bond yield is near record low, well below
Bunds
    * Czech central bank seen reaffirming pledge to scrap crown
cap
    * Polish bonds underperform Hungary, but resist political
standoff
    * Poland rejects new EU warning over the rule of law

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Dec 22 (Reuters) - Czech 2-year government
bonds traded near record low yields  ahead of Thursday's central
bank meeting which is seen reaffirming a plan to abandon an
exchange rate cap on the crown.
    The currency could surge after the 3-year-old
ceiling at 27 against the euro is removed, boosting the value of
Czech assets.
    That expectation has triggered heavy buying of Czech
government debt and crown forwards .
    It has forced the central bank to boost foreign currency
reserves via crown selling to 80 billion euros from 35 billion
euros since 2013.
    The recent extension of the European Central Bank's asset
buying stimulus argues against removing the cap as it may make
the crown too attractive relative to the euro.
    But signs that Central Europe's anaemic inflation is
gathering vigour could cut appreciation pressure on the crown
and allow more hawkish central bank (CNB) rhetoric, Raiffeisen
analysts said in a note.
    "Then again the CNB should repeat its previously mentioned 
views that the FX regime will not be abandoned before Q2 2017...
while mentioning that in their view mid-2017 could be a relevant
date for the abolishment of the regime," they said.
    "Until then speculative inflow could continue increasing,
forcing the CNB into elevated interventions to prevent CZK
appreciation," they added.
     The ultralow Czech 2-year government bond yield traded at
-1.016 percent, a shade lower from Wednesday and near record
lows touched in the previous session.
    It was 23 basis points below the corresponding yield in the
German Bund market, the euro zone's safe haven.
    Bond yields in the euro zone and Central Europe mostly rose.
    Hungarian bonds were mixed, but yields were near record
lows, supported by the central bank's loose policies including
Tuesday's cut in the limit on its 3-month deposits.
    Hungary's 10-year bonds, trading at 3.15 percent, have fully
recovered from last month's global shock from Donald Trump's
U.S. election victory. 
    The yield on the United States' much-better-rated 10-year
bonds at 2.546 percent is 70 basis points above pre-election
levels, and in Central Europe, Poland's 10-year yield at 3.41
percent also remains higher by 35 basis points.
    An ongoing standoff in Warsaw's parliament over the rule of
law in Poland, and a warning from the European Commission on
Wednesday puts some pressure on Polish financial assets.
    But the region's and the country's healthy economic growth
prospects keep Polish assets quite resilient to the political
concerns as investors manage their positions ahead of the
year-end.
    
              CEE        SNAPS   AT  1034          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2016
 Czech crown             27.02  27.01  -0.01  -0.08
                            00     70      %      %
 Hungary                 310.0  310.5   +0.1  1.48%
 forint                    500    650     7%  
 Polish                  4.410  4.410  -0.01  -3.45
 zloty                       3      0      %      %
 Romanian                4.515  4.516   +0.0  0.08%
 leu                         5      5     2%  
 Croatian                7.530  7.532   +0.0  1.45%
 kuna                        0      5     3%  
 Serbian                 123.5  123.6   +0.0  -1.72
 dinar                     900    700     6%      %
 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      2016
 Prague                  917.0  917.5  -0.06  -4.11
                             1      5      %      %
 Budapest                31752  31765  -0.04   +32.
                           .50    .30      %    74%
 Warsaw                  1927.  1927.   +0.0   +3.7
                            87     90     1%     0%
 Bucharest               7020.  7022.  -0.02   +0.2
                            94     57      %     4%
 Ljubljana               701.7  703.2  -0.21   +0.8
                             7      2      %     1%
 Zagreb                  1983.  1984.  -0.05   +17.
                            47     46      %    39%
 Belgrade     <.BELEX15  719.4  722.2  -0.39   +11.
              >              1      0      %    69%
 Sofia                   576.2  574.9   +0.2   +25.
                             7      2     3%    03%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -1.01  -0.00  -023b  -1bps
              >              6      8     ps  
   5-year     <CZ5YT=RR  -0.16  0.053   +032   +4bp
              >              8           bps      s
   10-year    <CZ10YT=R  0.582  0.105   +032   +9bp
              R>                         bps      s
 Poland                                            
   2-year     <PL2YT=RR  1.968      0   +276   +0bp
              >                          bps      s
   5-year     <PL5YT=RR  2.692   0.01   +318   +0bp
              >                          bps      s
   10-year    <PL10YT=R  3.425  0.002   +317  -1bps
              R>                         bps  
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.28   0.24   0.22      0
              PRIBOR=>                        
 Hungary              <   0.37    0.4   0.48   0.39
              BUBOR=>                         
 Poland               <   1.75  1.765   1.79   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
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 (Reporting by Sandor Peto; Editing by Toby Chopra)

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