October 12, 2018 / 10:48 AM / a year ago

CEE MARKETS-Equities and currencies rebound as bonds tread water

    * Stocks' worldwide rebound lifts CEE shares and currencies
    * Zloty leads, some see possibility of S&P Poland upgrade 
    * Hungarian 10-year bond yield stays flat near 3-year high 

    By Sandor Peto
    BUDAPEST, Oct 12 (Reuters) - Central European equities rose
on Friday, tracking a rebound in Asian and Western European
markets after a sell-off in the previous session.
    Warsaw's bluechip index led, rising over one
percent after Thursday's fall to a 3-month low. 
    Oil group PKN Orlen was the biggest gainer having
been the major loser in Thursday's rout.
    The region's currencies firmed, with Poland also leading as
the zloty rose 0.2 percent to 4.3 versus the euro, a
psychologically important level for markets. 
    Central European currencies have held firm despite a drop in
equities and government bonds over the past few weeks, driven by
an increase in U.S. bond yields, concern over Italy's debt and
worry over equity valuations worldwide.
    The region's two most liquid currencies, the zloty and the
forint have been rangebound around key levels versus the euro
since early September: the zloty near 4.3 and the forint around
    Poland's disciplined budget and healthy economic growth
should earn it a credit rating upgrade from Standard & Poor's
late on Friday, Raiffeisen analyst Gintaras Shlizhyus said.
    But the agency may still keep the rating at BBB+ due to
Warsaw's tensions with the European Commission over the rule of
law, he said in a note. Moody's may upgrade the Czech Republic
on Friday, Shlizhyus said.
    Santander analysts said in a note that "an upgrade from S&P
(for Poland) is not very likely" due to politics.
    "Moreover, rising worries about global slowdown and risk
factors (hard Brexit) do not create favourable environment for
upgrades," they said.
    Poland's 10-year government bond yield dropped
1 basis point to 3.25 percent, having hit 5-month highs above
3.3 percent this week.
    The past two weeks' surge in the 10-year U.S. Treasury yield
had caused bond selling in Central Europe, with Hungary's
long-term bonds worst hit, before the past two days' rebound.
    The 10-year Hungarian paper was quoted at around 3.87
percent, the average yield set at Thursday's auctions, with the
tenders robustly bid after the recent yield rise. 
    The 10-year yield held near the 3-year highs reached above
3.9 percent on Wednesday.
    Hungarian bonds underperformed in the sell-off because
Hungary's central bank has the lowest short-term interest rates
in the region, with 3-month bills sold at negative yields this
month at their auctions.
    "I do not expect the bank to change interest rates or say
anything new (at its upcoming meeting on Tuesday)," one forint
trader said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1105 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8200   25.8320    +0.05%    -1.08%
 crown      >                                       
 Hungary    <EURHUF=  324.9000  325.0500    +0.05%    -4.30%
 forint     >                                       
 Polish     <EURPLN=    4.3025    4.3118    +0.22%    -2.93%
 zloty      >                                       
 Romanian   <EURRON=    4.6618    4.6656    +0.08%    +0.38%
 leu        >                                       
 Croatian   <EURHRK=    7.4125    7.4142    +0.02%    +0.24%
 kuna       >                                       
 Serbian    <EURRSD=  118.2500  118.2600    +0.01%    +0.21%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1084.43  1083.680    +0.07%    +0.58%
 Budapest             36256.21  35904.54    +0.98%    -7.93%
 Warsaw                2177.31   2159.88    +0.81%   -11.53%
 Bucharest             8383.08   8401.96    -0.22%    +8.12%
 Ljubljana  <.SBITOP    828.77    818.80    +1.22%    +2.78%
 Zagreb                1756.75   1754.55    +0.13%    -4.67%
 Belgrade   <.BELEX1    730.98    731.90    -0.13%    -3.79%
 Sofia                  608.30    609.09    -0.13%   -10.21%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7050    0.1330   +227bps    +14bps
   5-year   <CZ5YT=R    1.8810    0.0320   +199bps     +2bps
   10-year  <CZ10YT=    2.1520    0.0000   +162bps     -1bps
   2-year   <PL2YT=R    1.5950   -0.0110   +216bps     -1bps
   5-year   <PL5YT=R    2.5730   -0.0100   +268bps     -2bps
   10-year  <PL10YT=    3.2840    0.0140   +275bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.03      2.22      2.35      1.75
 Hungary                  0.49      0.82      1.18      0.17
 Poland                   1.76      1.80      1.86      1.72
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto
Editing by Louise Ireland)
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