April 23, 2018 / 9:44 AM / in a year

CEE MARKETS-Bond yields test multi-week highs, eyeing U.S., euro zone peers

    * CEE bond yields at or near multi-week highs on global
    * U.S. yield rise also weakens liquid CEE currencies
    * Regional budget and debt dynamics are generally sound
    * Moody's changed outlook on Czech A1 rating to positive

    By Sandor Peto
    BUDAPEST, April 23 (Reuters) - Central European government
bonds tested multi-week highs on Monday and the region's most
liquid currencies eased as a rise in Treasury yields attracted a
flow of funds into U.S. assets.
    The rise in the 10-year U.S. Treasury yield to its highest
level since 2014, near 3 percent, helped the euro weaken
in its cross against the dollar, which is closely watched in the
European Union's eastern currency markets.
    The region's most liquid units, the zloty and the
forint weakened by 0.2 percent against the euro by
0842 GMT and the Czech crown shed 0.1 percent. 
    The region's currencies are still well within the past
weeks' typical ranges and near two-month high territories.
    "The European Central Bank's guidance later this week, about
the future of its stimulus programme, is the next thing that may
cause some movement," one Budapest-based dealer said.
    Regional government bond yields, meanwhile, reached or
tested multi-week highs.
    Czech yields joined the rise, not benefiting from an
announcement made by Moody's late on Friday about changing its
outlook on the Czech Republic's A1 rating to positive from
    Moody's said Czech fiscal indicators continued to improve,
supported by a strong momentum in economic growth.
    Poland revised its 2017 budget deficit to 1.7 percent of
economic output from 1.5 percent.
    That is still well below the EU's 3 percent threshold, and
budget and debt dynamics have been healthy across the robustly
growing region.
    Poland reported a higher-than-expected 9.2 percent annual
rise in retail sales in March, but the Polish central bank is
expected to stick to its forecast that interest rates could stay
at record lows for years.
    The U.S. and euro zone yield rise pushed Polish yields
higher, with its 10-year bonds reaching 3-week highs, bid above
3.14 percent.
    The only economy in the region where fast growth has
produced overheating symptoms, has been Romania, where annual
inflation reached 5-year high at 5 percent last month, well
beyond the central bank's target.
    Its 2-year bond yield was bid at 2.88 percent in early
trade, the highest in two months.
    An auction of 5-year Romanian government bonds on Monday is
"likely to see low demand and partial allocation",
Bucharest-based ING analysts said in a note. 
    The Romanian central bank, which started to lift interest
rates earlier this year, is expected to tighten liquidity in
local markets further, and that buoys the leu which
was steady at 4.6565 against the euro on Monday, the analysts
    The bank reopened a long-unused deposit facility a week ago
to drain liquidity out of leu markets.
            CEE       SNAPSHOT   AT                         
            MARKETS             1042 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3800   25.3600    -0.08%    +0.64%
 crown      >                                       
 Hungary    <EURHUF=  311.1900  310.6000    -0.19%    -0.09%
 forint     >                                       
 Polish     <EURPLN=    4.1795    4.1717    -0.19%    -0.08%
 zloty      >                                       
 Romanian   <EURRON=    4.6565    4.6580    +0.03%    +0.50%
 leu        >                                       
 Croatian   <EURHRK=    7.4120    7.4125    +0.01%    +0.25%
 kuna       >                                       
 Serbian    <EURRSD=  117.9600  118.2000    +0.20%    +0.46%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1121.85  1121.260    +0.05%    +4.05%
 Budapest             38243.45  38122.87    +0.32%    -2.88%
 Warsaw                2298.16   2298.20    -0.00%    -6.62%
 Bucharest             8945.04   8920.49    +0.28%   +15.36%
 Ljubljana  <.SBITOP    833.15    830.92    +0.27%    +3.32%
 Zagreb                1784.37   1788.72    -0.24%    -3.17%
 Belgrade   <.BELEX1    739.88    739.52    +0.05%    -2.62%
 Sofia                  661.94    658.44    +0.53%    -2.29%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7540    0.0860   +129bps     +7bps
   5-year   <CZ5YT=R    1.2000    0.0120   +120bps     -3bps
   10-year  <CZ10YT=    1.7680    0.0250   +113bps     -2bps
   2-year   <PL2YT=R    1.5540    0.0120   +209bps     -1bps
   5-year   <PL5YT=R    2.4190    0.0340   +242bps     -1bps
   10-year  <PL10YT=    3.1150    0.0130   +248bps     -3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.05      1.19      0.90
 Hungary                  0.07      0.10      0.18      0.03
 Poland                   1.73      1.74      1.77      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Toby Chopra)
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