June 14, 2018 / 9:52 AM / 9 months ago

CEE MARKETS-Forint hits three-year low, rate-setter reaffirms dovish bias

    * Forint hits weakest level since early 2015 vs euro
    * Expected hawkish ECB comments weigh on sentiment
    * Hungarian government bond yields surge further

    By Sandor Peto
    BUDAPEST, June 14 (Reuters) - The forint hit a three-year
low against the euro, lagging  Central European peers, as a
Hungarian central banker reaffirmed a dovish policy bias, even
though the European Central Bank (ECB) may signal a tightening
stance later on Thursday.
    Regional currencies and government bonds mostly shrugged off
a hawkish tone from the U.S. Federal Reserve's meeting on
    Dealers said it was no surprise, and it was also priced in
that the ECB could offer clues on its intentions to end its bond
purchasing programme by the end of the year.
    Currencies in the European Union's eastern wing were mostly
steady or slightly firmer, off multi-month lows hit in recent
weeks, despite pressure on some emerging market currencies,
including those in South Africa and Mexico.
    The forint, however, had eased half a percent to
322.2 against the euro by 0924 GMT, hitting its weakest level
since early 2015.
    Dovish comments from Hungarian central banker Gyula
Pleschinger contributed to the fall, one Budapest-based dealer
    Pleschinger said on the sidelines of a conference that he
saw no reason for now for the bank to change its easing bias.

    Rumours about comments made behind closed doors by a senior
rate setter have since Friday raised question marks over the
bank's commitment to keeping interest rates low for years and
caused market jitters, including a surge in Hungarian bond
    "Investors pay a little bit more attention to local things
now," the dealer said.
    "Increased volatility in the zloty-forint cross in the past
days was a good indication of that," the dealer added. "What
happens (in markets) greatly hinges on the bank's
    The bank is due to hold its next rate-setting meeting on
    The country's government bonds, boosted since last summer by
the central bank's pledges to keep yields low, have been at the
centre of a regional sell-off caused by the rise in U.S. rates
and the dollar. 
    Increased uncertainty over the bank's policy have boosted
Hungarian bond yields further in the past days.
    The 10-year yield rose another 13 basis points on Thursday,
to 3.58 percent, its highest level for years, rising by half a
percentage point in a week.
    "This is happening even though the (Pleschinger) comments
were dovish, and you can see their impact in the forint,"
another trader said.
    "(Yields) have reached levels which are painful to many
investors, I suspect," the trader added.
    Poland's 10-year yield rose 6 basis points to 3.31 percent.
Just five months ago, Hungary's 10-year yield was more than a
percentage point below its Polish peer.     
                 CEE         SNAPSHOT   AT                        
                 MARKETS               1053              
                             Latest    Previou  Daily    Change
                             bid       close    change   in 2018
 EURCZK  Czech                25.6950  25.7225   +0.11%     -0.60%
 =       crown                                           
 EURHUF  Hungar              321.4500  320.580   -0.27%     -3.28%
 =       y                                   0           
 EURPLN  Polish                4.2730   4.2755   +0.06%     -2.26%
 =       zloty                                           
 EURRON  Romani                4.6658   4.6660   +0.00%     +0.30%
 =       an leu                                          
 EURHRK  Croati                7.3845   7.3790   -0.07%     +0.62%
 =       an                                              
 EURRSD  Serbia              118.1000  118.120   +0.02%     +0.34%
 =       n                                   0           
         Note:   calculated from                1800              
         daily                                  CET      
                             Latest    Previou  Daily    Change
                                       close    change   in 2018
 .PX     Prague               1077.31  1082.02   -0.44%     -0.08%
 .BUX    Budape              36049.03  35868.5   +0.50%     -8.45%
         st                                  9           
 .WIG20  Warsaw               2234.38  2238.94   -0.20%     -9.22%
 .BETI   Buchar               8281.07  8292.54   -0.14%     +6.80%
 .SBITO  Ljublj                893.56   890.18   +0.38%    +10.81%
 P       ana                                             
 .CRBEX  Zagreb               1823.82  1821.17   +0.15%     -1.03%
 .BELEX  Belgra                736.41   733.30   +0.42%     -3.08%
 15      de                                              
 .SOFIX  Sofia                 635.42   634.71   +0.11%     -6.20%
                             Yield     Yield    Spread   Daily
                             (bid)     change   vs Bund  change in
         Czech                                           spread
 CZ2YT=                        1.0700  -0.0090   +169bp      -2bps
 RR      2-year                                       s  
 CZ5YT=                        1.5820  -0.0150   +171bp      -4bps
 RR      5-year                                       s  
 CZ10YT          <CZ10YT=RR    2.1470   0.0150   +165bp      -1bps
 =RR     10-yea  >                                    s  
 PL2YT=                        1.6040   0.0130   +222bp      +0bps
 RR      2-year                                       s  
 PL5YT=                        2.4650   0.0050   +259bp      -2bps
 RR      5-year                                       s  
 PL10YT          <PL10YT=RR    3.3050   0.0580   +281bp      +4bps
 =RR     10-yea  >                                    s  
                 FORWARD     RATE      AGREEME                    
                             3x6       6x9      9x12     3M
         Czech           <P      1.18     1.34     1.47       0.92
         Rep     RIBOR=>                                 
         Hungar          <B      0.40     0.10     0.18       0.13
         y       UBOR=>                                  
         Poland          <W      1.75     1.78     1.84       1.70
         Note:   are for ask prices                               
 (Additional reporting by Mirka Krufova in Prague; Editing by
Mark Potter)
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