November 20, 2018 / 4:37 PM / 8 months ago

CEE MARKETS-Hungarian bond yields drop, central bank holds fire

    * Hungary's central bank gives no signal on tightening
    * Says annual inflation could retreat
    * Hungarian bond yields set multi-month lows
    * Moody's may upgrade Hungary's credit rating on Friday
    * Polish markets take a breather after slump on bank scandal

 (Recasts with Hungarian central bank meeting, bonds)
    By Sandor Peto
    BUDAPEST, Nov 20 (Reuters) - Hungarian government bond
yields fell to multi-month lows on Tuesday after the central
bank gave no indication that interest rates could rise soon. 
    The bank kept Central Europe's lowest benchmark interest
rate on hold at 0.9 percent as expected, and said at its policy
meeting that annual inflation could retreat after a rise to 3.8
percent, near the top of its 2-4 percent target, by October.
    Some investors had expected the bank to hint at future
interest rate hikes, but it gave no such signal. 
    This means that it could keep domestic markets awash in
money, and domestic bonds also benefited from a drop in bond
yields in most of Europe except for Italy, and the strength of
the forint, one Budapest-based fixed income trader said.
    The forint was slightly weaker at 321.47 against
the euro at 1512 GMT, but still close to three-month highs.
    Hungary's 10- and 5-year government bond yields were down 
almost 10 basis points, at 3.46 and 2.94 percent,
respectively, setting 10-week lows. The 3-year yield at 1.56
percent was near its lowest level since early August.
    "As the year-end approaches, some investors need to buy
bonds to close underweight positions," the trader said, adding
that only two primary bond auctions remained for the rest of the
    Another trader said the bonds were also helped by hopes for
an upgrade in the country's sovereign rating when Moody's
reviews its stance on Hungary on Friday.
    Polish bond yields also dropped, with the 10-year paper
trading at 3.194 percent, down 3 basis points.
    While a rebound of the dollar against the euro weakened most
Central European currencies, the zloty firmed a third of a
percent against the euro to trade at 4.317.
    Mateusz Sutowicz, financial market analyst at Bank
Millennium, said the move was technical, after the zloty
approached the weakest level of the past few weeks around 4.34.
    It was also helped by data showing a 7.4 percent annual
surge in Poland's industrial output. Polish markets were broadly
firmer after a week-long slump due to a corruption scandal which
hit bank shares.    
    Central European currencies, backed by robust economic
growth, face several risk factors in the short-term, including
the Polish scandal, Italy's tension with Brussels over its
budget plans and Britain's talks on its exit from the European
Union, Rabobank analysts said in a note.   
            CEE       SNAPSHOT   AT                         
            MARKETS             1612 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0410   26.0280    -0.05%    -1.92%
 crown      >                                       
 Hungary    <EURHUF=  321.4700  321.3000    -0.05%    -3.28%
 forint     >                                       
 Polish     <EURPLN=    4.3170    4.3320    +0.35%    -3.26%
 zloty      >                                       
 Romanian   <EURRON=    4.6655    4.6640    -0.03%    +0.30%
 leu        >                                       
 Croatian   <EURHRK=    7.4240    7.4275    +0.05%    +0.08%
 kuna       >                                       
 Serbian    <EURRSD=  118.3900  118.2700    -0.10%    +0.09%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1061.34  1079.180    -1.65%    -1.56%
 Budapest             38974.59  39323.01    -0.89%    -1.02%
 Warsaw                2154.20   2189.73    -1.62%   -12.47%
 Bucharest             8521.17   8566.30    -0.53%    +9.90%
 Ljubljana  <.SBITOP    814.82    817.66    -0.35%    +1.05%
 Zagreb                1734.14   1747.23    -0.75%    -5.90%
 Belgrade   <.BELEX1    741.69    744.87    -0.43%    -2.38%
 Sofia                  587.08    592.68    -0.94%   -13.34%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5190    0.0190   +217bps     +3bps
   5-year   <CZ5YT=R    1.8390    0.0010   +208bps     +2bps
   10-year  <CZ10YT=    2.0900    0.0000   +175bps     +3bps
   2-year   <PL2YT=R    1.5820   -0.0210   +223bps     -1bps
   5-year   <PL5YT=R    2.4540   -0.0200   +270bps     +0bps
   10-year  <PL10YT=    3.2170   -0.0180   +287bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.22      2.36      2.46      2.00
 Hungary                  0.28      0.52      0.84      0.13
 Poland                   1.76      1.80      1.84      1.72
 Note: FRA  are for ask prices                              

 (Additional reporting by Robert Muller in Prague and Alicja
Ptak in Warsaw, editing by Larry King and Emelia
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