November 22, 2018 / 10:20 AM / 8 months ago

CEE MARKETS-Hungarian bond yields fall on optimism over EU funds

    * Hungary's bond yields continue to drop ahead of auction
    * Finance Minister says delayed EU funds can flow in soon
    * Hungarian wages, Polish retail data show strong growth
    * Polish shares give up some of Wednesday's strong gain

    By Sandor Peto
    BUDAPEST, Nov 22 (Reuters) - Hungarian government bond
yields fell to multi-month lows ahead of the year's penultimate
bond auction on Thursday, amid optimism over European
Union fund inflows for the rest of 2018.
    Two days after the National Bank of Hungary (NBH) kept the
lowest central bank rate in the eastern wing of the European
Union on hold at 0.9 percent, the country's bonds traded at
yields about 5 basis points below Wednesday's fixing
    The 10-year yield, at 3.38 percent, was the lowest since
August, while the 3-year yield, around 1.5 percent, traded at
5-month lows.
    Hungarian bond yields often rise ahead of auctions, but this
time they are under pressure as investors close short positions
ahead of the end of the year, market participants said.
    "Yields are coming back after a jump in early October as
core market yields like Bunds have also come down," said Gergely
Forian-Szabo, fund manager of Amundi in Budapest.
    "Also there are positive developments in EU funds inflows
despite earlier fears that their delay could open up a big gap
in the budget," he added.
    Finance Minister Mihaly Varga told Reuters late on Wednesday
the government had pre-financed over 1.5 trillion forints ($5.32
billion) worth of spending, of which only some 600 billion had
been reimbursed so far and more could arrive by the end of the
    The Hungarian yield decline came in tandem with a rise in
foreign investors' Hungarian government bond holdings
 to a 3-year high, Forian-Szabo said.
    Worries the NBH could start to increase rates too late to
tackle a rise in inflation have also eased, but may return if
continuing strong growth gives more fuel to price rises than
expected, market participants said.
    "It will be exciting to watch if (annual) inflation figures
in the next months indeed show a retreat (from 3.8 percent in
October) towards 3 percent," one Budapest-based fixed income
trader said.
    A 10.4 percent annual rise in gross wages in Hungary, and a
9.7 percent increase in retail sales in Poland, indicated
continuing robust growth in figures released on Thursday.
    Despite the figures, Central European currencies and stocks
gave up some of the ground they gained on Wednesday as fears of
a global economic slowdown weighed on international markets.
    Warsaw's bluechip equities index dropped by 0.3
percent after posting its biggest gain since early January on
Wednesday, when it rose 2.7 percent.
    Polish shares and the zloty rallied in the previous session
after the government changed tack on legal reforms that have
fuelled a crisis in relations with the European Commission.
            CEE       SNAPSHOT   AT                         
            MARKETS             0954 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0100   25.9940    -0.06%    -1.80%
 crown      >                                       
 Hungary    <EURHUF=  321.6600  321.4000    -0.08%    -3.34%
 forint     >                                       
 Polish     <EURPLN=    4.3060    4.2986    -0.17%    -3.01%
 zloty      >                                       
 Romanian   <EURRON=    4.6610    4.6643    +0.07%    +0.40%
 leu        >                                       
 Croatian   <EURHRK=    7.4300    7.4323    +0.03%    +0.00%
 kuna       >                                       
 Serbian    <EURRSD=  118.4800  118.3900    -0.08%    +0.02%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1063.45  1067.790    -0.41%    -1.36%
 Budapest             39316.82  39431.33    -0.29%    -0.15%
 Warsaw                2213.30   2219.62    -0.28%   -10.07%
 Bucharest             8501.99   8535.50    -0.39%    +9.65%
 Ljubljana  <.SBITOP    813.72    811.39    +0.29%    +0.91%
 Zagreb                1729.97   1733.14    -0.18%    -6.13%
 Belgrade   <.BELEX1    742.84    741.12    +0.23%    -2.23%
 Sofia                  588.69    589.47    -0.13%   -13.10%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5220   -0.0150   +217bps     -1bps
   5-year   <CZ5YT=R    1.8420    0.0070   +208bps     +2bps
   10-year  <CZ10YT=    2.1040    0.0300   +175bps     +5bps
   2-year   <PL2YT=R    1.5830    0.0050   +223bps     +1bps
   5-year   <PL5YT=R    2.4510    0.0010   +269bps     +1bps
   10-year  <PL10YT=    3.2130    0.0030   +286bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.22      2.33      2.42      2.01
 Hungary                  0.30      0.55      0.86      0.13
 Poland                   1.77      1.80      1.84      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Marcin Goclowski in Warsaw; Editing by
Mark Potter)
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