February 7, 2020 / 10:49 AM / 17 days ago

CEE MARKETS-Currencies retreat, forint at new record low

    WARSAW, Feb 7 (Reuters) - Central European currencies
weakened on Friday, with the Czech crown and Romanian leu giving
up some of the previous day's gains and the Hungarian forint
setting a fresh record low after an unexpected Czech rate hike
shook up the region's markets.
    The Czech crown jumped as much as 0.8% on Thursday
after the Czech National Bank delivered a surprise increase in
interest rates to quell domestic price pressures, raising the
main two-week repo rate by 25 basis points to 2.25%.

    Raiffeisen said the bank's policy was in "stark contrast" to
other rate setting bodies, like the European Central Bank, which
has been easing policy.
    "The interest rate differential between the Czech Republic
and the euro zone is supportive of the CZK (Czech crown)
exchange rate and shields it from spillovers from virus-driven
sell-offs," Raiffeisen said, referring to worries over China's
coronavirus outbreak.
    Meanwhile, Romania sold 1.16 billion lei ($267 million) of
2029 treasury bonds on Thursday, more than double the planned
amount. Sentiment in Romania was helped by signs an early
election had moved a step closer after the president asked
outgoing Prime Minister Ludovic Orban to form a new government.

    "We had a very strong bond auction yesterday on the primary
market ... offshores sold euro to buy RON (lei) to participate
in the auction," said Valentin Tataru, an economist at ING in
    "It might have political connections ... maybe people are
perceiving the signals coming from the political scene with the
early elections as positive."
    At 0909 GMT, the crown was 0.30% weaker against the euro at
25.047, while the leu was 0.15% weaker at 4.7616. The
Polish zloty shed 0.11% to be bid at 4.2622.
    The Hungarian forint set a fresh record low
against the euro, falling 0.30% to 338.91.
    The forint has become a financing currency in carry-trade
deals, as the Hungarian central bank has held an ultra-dovish
stance, keeping interest rates at the lowest level in Central
Europe. This means investors have been buying higher-yielding
assets by using forints, and have built up short positions
expecting further forint weakness.
    "There have already been carry trade deals in the region,
and the surprise rate hike by the Czech central bank made some
investors shift from HUF (forints) to the crown," said a dealer
in Budapest. He said the dollar's strengthening had contributed
to the forint's falls. 
    The Hungarian central bank's swap tender on Monday will be
closely watched by investors to see how the bank fine-tunes
market liquidity amid the latest bout of forint weakness, he
    Czech ten-year yields continued to rise after
Thursday's rate hike, going up 1 basis point to 1.648%.
    Polish 10-year yields fell in line with euro
zone equivalents, as further cases of coronavirus dented risk
appetite. At 0925 GMT, the 10-year yield was 2.109%, down just
over 3 basis points.
    Stocks also took a knock from virus fears, with Warsaw's WIG
20 falling 0.2% and Budapest's main index
shedding 0.15%.
                   CEE      SNAPSHO   AT                      
                   MARKETS  T        1130              
                            Latest   Previou  Daily    Change
                            bid      close    change   in 2020
 EURCZK  Czech     <EURCZK  25.0400  25.0050   -0.14%   +1.57%
 =       crown     =>                                  
 EURHUF  Hungary   <EURHUF  338.900  337.935   -0.28%   -2.29%
 =       forint    =>             0        0           
 EURPLN  Polish    <EURPLN   4.2664   4.2586   -0.18%   -0.23%
 =       zloty     =>                                  
 EURRON  Romanian  <EURRON   4.7638   4.7569   -0.14%   +0.51%
 =       leu       =>                                  
 EURHRK  Croatian  <EURHRK   7.4550   7.4565   +0.02%   -0.13%
 =       kuna      =>                                  
 EURRSD  Serbian   <EURRSD  117.530  117.610   +0.07%   +0.03%
 =       dinar     =>             0        0           
         Note:     calculated from            1800            
         daily                                CET      
                            Latest   Previou  Daily    Change
                                     close    change   in 2020
 .PX     Prague             1107.82  1114.60   -0.61%   -0.70%
 .BUX    Budapest           44005.2  44127.9   -0.28%   -4.51%
                                  8        9           
 .WIG20  Warsaw    <.WIG20  2104.37  2111.76   -0.35%   -2.13%
 .BETI   Buchares           10110.4  10107.3   +0.03%   +1.33%
         t                        9        8           
 .SBITO  Ljubljan  <.SBITO   974.48   979.94   -0.56%   +5.25%
 P       a         P>                                  
 .CRBEX  Zagreb    <.CRBEX  2026.10  2025.20   +0.04%   +0.43%
 .BELEX  Belgrade  <.BELEX   796.66   796.89   -0.03%   -0.63%
 15                15>                                 
 .SOFIX  Sofia     <.SOFIX   569.10   570.05   -0.17%   +0.17%
                            Yield    Yield    Spread   Daily
                            (bid)    change   vs Bund  change
         Czech                                         spread
 CZ2YT=    2-year  <CZ2YT=   1.8810   0.0820   +252bp    +9bps
 RR                RR>                              s  
 CZ5YT=    5-year  <CZ5YT=   1.6470  -0.0760   +225bp    -7bps
 RR                RR>                              s  
 CZ10YT            <CZ10YT   1.6480   0.0100   +204bp    +3bps
 =RR     10-year   =RR>                             s  
 PL2YT=    2-year  <PL2YT=   1.5320  -0.0010   +217bp    +1bps
 RR                RR>                              s  
 PL5YT=    5-year  <PL5YT=   1.7720  -0.0650   +237bp    -5bps
 RR                RR>                              s  
 PL10YT            <PL10YT   2.0960  -0.0450   +248bp    -2bps
 =RR     10-year   =RR>                             s  
                            3x6      6x9      9x12     3M
         Czech     <CZKFRA     2.40     2.35     2.25     2.16
         Rep       ><PRIBO                             
         Hungary   <HUFFRA     0.48     0.58     0.68     0.31
         Poland    <PLNFRA     1.72     1.71     1.70     1.71
         Note:     are for ask                                
         FRA       prices                              
($1 = 4.3442 lei)

 (Reporting by Alan Charlish in Warsaw, Luiza Ilie in Bucharest,
Jason Hovet in Prague and Krisztina Than and Anita Komuves in
Budapest; Editing by Mark Potter)
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