November 21, 2017 / 4:32 PM / a month ago

CEE MARKETS-Hungarian yield curve flatten on new central bank tools

    * Hungarian cbank announces new IRS tool to curb bond yields
    * Forint hits seven-month low, Hungarian long-term yields
drop
    * Measures could boost mortgage lending ahead of elections
    * Polish zloty hits four-month high vs euro

 (Recasts with central bank decision and comments)
    By Sandor Peto
    BUDAPEST, Nov 21 (Reuters) - Hungary's forint hit a
seven-month low and long-term bond yields fell after the central
bank (NBH) announced new tools to keep monetary policy loose and
encourage mortgage lending. 
     The NBH, regarded as one of the world's most dovish central
banks, kept interest rates on hold but said it would launch
unconditional 5-year and 10-year interest rate swap (IRS) tools
in January and also buy mortgage bonds in the market.

    The aim is to push long-term market interest rates lower and
encourage mortgage lending at low fixed rates.
    The 1 trillion to 1.5 trillion forint IRS programme and
roughly 500 billion forint note-buying scheme from the bank --
the governor of which is Gyorgy Matolcsy, a strong ally of Prime
Minister Viktor Orban -- could help to boost lending around the
time of elections in April or May.
    "This is a quite big programme," one fixed-income trader
said, adding that Hungary's medium and long-term government bond
yields could fall further.
    The announcement of the new tools had been widely expected,
but it pushed medium and long-term yields 2-4 basis points (bps)
lower, with 10-year benchmark paper trading at 2.19 percent,
down 7 bps from Monday's fixing.
    The fall comes on the heels of a 150 bps decline in the
10-year yield since March. That narrowed the spread over the
3-year yield which has declined by about 100 bps to 0.56
percent.
    The forint touched seven-month lows against the
euro at 313.34 because the measures were interpreted as another
round of monetary easing after repeated NBH liquidity injections
in the interbank market this year.
    At 1539 GMT the forint traded at 313.70, 0.4 percent weaker,
while its Central European peer the Polish zloty
touched four-month highs, firming 0.3 percent to 4.221.
    Robust economic growth in the region, demonstrated by strong
Polish wages, industrial output and retail sales data in recent
days, has been helping its currencies.
    The Hungarian central bank's dovish policies, however, have
weighed on the forint, which has shed 1.5 percent this year,
while the zloty has gained more than 4 percent.  
    "The forint's movement was small, given the news," one
Budapest-based trader said. "The new measures may even lead to a
strengthening later if foreign investors join the buying of
Hungarian bonds." 
    Hungary's 10-year bond yield could fall to 2 percent in the
short term and the 3-month BUBOR interbank rate could
turn negative from 0.03 percent, Erste analyst Orsolya Nyeste
said in a note.
    
               CEE MARKETS  SNAPSH   AT  1639 CET         
                            OT                      
                            CURRENCIES                    
                            Latest  Previo  Daily   Change
                                    us              
                            bid     close   change  in
                                                    2017
 Czech crown                25.527  25.546   +0.07   5.80%
                                 0       0       %  
 Hungary                    313.70  312.43  -0.40%  -1.56%
 forint                         00      00          
 Polish zloty               4.2210  4.2332   +0.29   4.33%
                                                 %  
 Romanian leu               4.6450  4.6488   +0.08  -2.37%
                                                 %  
 Croatian                   7.5635  7.5663   +0.04  -0.11%
 kuna                                            %  
 Serbian                    118.78  118.64  -0.12%   3.85%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            STOCKS                        
                            Latest  Previo  Daily   Change
                                    us              
                                    close   change  in
                                                    2017
 Prague                     1050.5  1053.5  -0.28%   +13.9
                                 5       5              9%
 Budapest                   39525.  39359.   +0.42   +23.5
                                53      28       %      1%
 Warsaw                     2487.9  2468.0   +0.80   +27.7
                                 0       9       %      2%
 Bucharest                  7823.4  7813.8   +0.12   +10.4
                                 2       5       %      2%
 Ljubljana                  790.81  787.75   +0.39   +10.2
                                                 %      0%
 Zagreb                     1855.8  1845.2   +0.57  -6.97%
                                 8       7       %  
 Belgrade                   728.57  733.93  -0.73%   +1.56
                                                         %
 Sofia                      669.97  669.14   +0.12   +14.2
                                                 %      5%
                            BONDS                         
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                    0.392   0.019   +111b   +3bps
                                                ps  
   5-year                     0.95    0.06   +130b   +7bps
                                                ps  
   10-year                   1.813    0.07   +146b   +8bps
                                                ps  
 Poland                                                   
   2-year                    1.597  -0.017   +231b   -1bps
                                                ps  
   5-year                    2.637  -0.011   +299b   -1bps
                                                ps  
   10-year                   3.429  -0.019   +308b   -1bps
                                                ps  
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
                                                    interb
                                                    ank
 Czech Rep             <PR    1.04    1.22    1.35       0
               IBOR=>                               
 Hungary               <BU    0.08     0.1    0.13    0.03
               BOR=>                                
 Poland                <WI   1.772   1.829    1.93    1.73
               BOR=>                                
 Note: FRA     are for ask                                
 quotes        prices                               
 *********************************************************
 *****
 

 (Reporting by Sandor Peto; Editing by Andrew Heavens and David
Goodman)
  
 
 

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