May 9, 2018 / 2:10 PM / a year ago

CEE MARKETS-Czech yields rise on weak auction, peers retreat as currencies recover

    * Weak demand at Czech bond auction helps push yields higher
    * Czech yields rise while regional peers retreat on EURUSD
    * Czech bonds still remain regional outperformers 

 (Recasts with Czech auction and yield rise, dealer comment,
Romanian inflation forecast revision)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, May 9 (Reuters) - Czech government bond
yields led a rise in Central Europe on Wednesday as demand was
weak at an auction in Prague after a bond sell-off in the region
in the past days.
    Czech bonds missed a surge in regional yields on Tuesday as
Prague markets were closed for holiday.
    Their yields opened higher on Wednesday and edged further up
as the government sold less papers than planned at its auction.
    Nine-year bonds were sold at an average yield of 1.677
percent, 10 basis points above their level at a tender held four
weeks ago.
    Bids for the benchmark 10-year Czech bond yield rose 9 basis
points to 1.84 percent.
    Bond yields elsewhere in the region, meanwhile, retreated as
regional currencies recovered from a morning weakening, tracking
a rebound of the euro against the dollar. 
    The forint rebounded from a 10-month low versus
the euro and traded steady at 315.15 at 1326 GMT, while the
zloty firmed half a percent, to trade at 4.2685 and the leu
 firmed 0.2 percent to 4.6445.
    The yield on Polish 10-year bonds dropped to 3.26 percent
from the day's peak from 3.3 percent, and was only 1 basis point
higher from Tuesday.
    It has still risen by more than 20 basis points this month,
just like its Hungarian and Romanian peers.
    Investors have been selling assets in the region to cover
losses suffered in other emerging markets due to a rise in
dollar interest rates and a surge of the dollar.
    The 10-year Czech yield has risen much less as foreign
investors hold onto their Czech bond holdings, hoping for crown
 gains as the central bank (CNB) is seen tightening its
policy further. 
    One Prague-based dealer said the Czech auction was weak
because local bond yields became too low relative to other
    "Also the real money seem to have saturated themselves a bit
in the past few auctions and we probably reach some kind of
limit point of where it is rational to invest into bonds," the
dealer said.
    "Also, CNB being surprisingly hawkish last week, contrary to
market expectations, has played a role," the dealer added.
    Romania's 10-year bond yield dropped 2 basis points from
Tuesday and was bid at 4.8 percent.
    The Romanian central bank, which delivered its third
interest rate hike this year on Monday, increased its inflation
forecast for the end of the year on Wednesday, but the revision
to 3.6 percent from 3.5 percent was small. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1526 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5600   25.5910    +0.12%    -0.07%
 crown      >                                       
 Hungary    <EURHUF=  315.1500  315.2100    +0.02%    -1.34%
 forint     >                                       
 Polish     <EURPLN=    4.2685    4.2895    +0.49%    -2.16%
 zloty      >                                       
 Romanian   <EURRON=    4.6445    4.6520    +0.16%    +0.76%
 leu        >                                       
 Croatian   <EURHRK=    7.3870    7.3935    +0.09%    +0.59%
 kuna       >                                       
 Serbian    <EURRSD=  118.1000  118.1600    +0.05%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1096.59  1109.040    -1.12%    +1.71%
 Budapest             36815.52  37164.55    -0.94%    -6.51%
 Warsaw                2274.37   2236.40    +1.70%    -7.59%
 Bucharest             8774.51   8762.92    +0.13%   +13.16%
 Ljubljana  <.SBITOP    847.13    843.70    +0.41%    +5.05%
 Zagreb                1823.74   1824.75    -0.06%    -1.04%
 Belgrade   <.BELEX1    737.47    736.73    +0.10%    -2.94%
 Sofia                  649.73    653.01    -0.50%    -4.09%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8320    0.1350   +139bps    +13bps
   5-year   <CZ5YT=R    1.2960    0.0610   +135bps     +5bps
   10-year  <CZ10YT=    1.8430    0.0850   +127bps     +7bps
   2-year   <PL2YT=R    1.5800    0.0130   +214bps     +1bps
   5-year   <PL5YT=R    2.5280    0.0050   +258bps     +0bps
   10-year  <PL10YT=    3.2660    0.0100   +269bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.98      1.10      1.19      0.90
 Hungary                  0.07      0.18      0.18      0.05
 Poland                   1.73      1.77      1.79      1.70
 Note: FRA  are for ask prices                              

 (Additional reporting by Jason Hovet in Prague and Radu Marinas
in Bucharest
Editing by Alison Williams)
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