December 4, 2018 / 10:15 AM / 6 months ago

CEE MARKETS-Hungarian yields fall on growth fears, receding CPI concern

    * Hungarian bond yields resume rise to multi-month low
    * Global growth concerns push CEE debt yields lower
    * Currencies remain supported as dollar loses ground

    By Sandor Peto
    BUDAPEST, Dec 4 (Reuters) - Hungarian government bond yields
fell to their mid-year levels on Tuesday as inflation concerns
receded in Central Europe and fears of a global economic
slowdown crept back.
    The region's main equities markets, tracking Asian and
Western European peers, gave back part of the ground gained on
Monday due to relief over a truce in the U.S.-China trade war.
    Regional currencies failed to benefit from a selling of the 
dollar, breaking a typical correlation of 2018, even
though the zloty briefly touched a 2-month high
against the euro at 4.2749 in early trade.
    "There are economic growth fears (globally)," one
Budapest-based fixed income trader said.
    "We track core markets... and the U.S. market (long-term
Treasury yields) are already pricing in future rate cuts there,"
the trader said.
    Hungarian government bond yields, after some rebound on
Monday, fell again.
    They shed 5-8 basis points, with the 10-year paper trading
at its lowest levels since early June, at 3.1 percent.
    It almost closed a gap with better-rated Poland, even though
the corresponding Polish yield dipped 2-3 basis
points, briefly dipping below the 3-percent psychological line.
    Monday's PMI manufacturing indices in the region fell,
fuelling expectations that its robustly growing economies will
soon follow a slowdown in Western export markets.
    Figures released on Tuesday in the region showed a stronger
than expected 6 percent annual rise in Czech gross wages and a
rise in Romania's annual producer price index to 6.3 percent in
October from 5.6 percent in September.
    But a decline in global crude oil prices has helped dampen 
inflation fears in the region, fuelling a decline in government
bond yields, market participants said.
    That cuts the immediate pressure on central banks to tighten
policy, but regional currencies remain relatively strong as the 
dollar buying seen earlier this year does not continue, market
participants said. 
    Seasonal factors also help, Santander Bank analysts said.
    "This month is statistically positive for the zloty. In the
last 19 years, EURPLN rose in the final month of the year only
five times, last time in 2014," they said in a note.
    Looking ahead, an inversion in parts of the U.S. Treasury
yield curve can cause a headache if worries arise that regional
interest rates will be too low to track a reversal in U.S. rates
years from now.
    "That could cause worries in emerging markets, but that is a
too far prospect to open positions on," the Budapest trader
said. "It is not carved in stone that the U.S. curve will become
inverted. True, it looks quite strange at the moment."
            CEE       SNAPSHOT   AT                         
            MARKETS             1023 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9170   25.9030    -0.05%    -1.45%
 crown      >                                       
 Hungary    <EURHUF=  322.5500  322.6600    +0.03%    -3.61%
 forint     >                                       
 Polish     <EURPLN=    4.2759    4.2765    +0.01%    -2.33%
 zloty      >                                       
 Romanian   <EURRON=    4.6500    4.6487    -0.03%    +0.64%
 leu        >                                       
 Croatian   <EURHRK=    7.4015    7.3915    -0.14%    +0.39%
 kuna       >                                       
 Serbian    <EURRSD=  118.0000  118.1700    +0.14%    +0.42%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1070.53  1073.650    -0.29%    -0.71%
 Budapest             40609.71  40579.82    +0.07%    +3.13%
 Warsaw                2321.33   2329.37    -0.35%    -5.68%
 Bucharest             8738.60   8751.93    -0.15%   +12.70%
 Ljubljana  <.SBITOP    813.92    818.85    -0.60%    +0.94%
 Zagreb                1732.81   1732.12    +0.04%    -5.97%
 Belgrade   <.BELEX1    742.65    743.86    -0.16%    -2.26%
 Sofia                  599.89    599.10    +0.13%   -11.45%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7180    0.1090   +233bps    +12bps
   5-year   <CZ5YT=R    1.8140    0.0190   +207bps     +3bps
   10-year  <CZ10YT=    2.0790    0.0170   +179bps     +4bps
   2-year   <PL2YT=R    1.5420   -0.0110   +215bps     +0bps
   5-year   <PL5YT=R    2.4650   -0.0150   +272bps     +0bps
   10-year  <PL10YT=    3.0310   -0.0010   +274bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.18      2.30      2.37      2.02
 Hungary                  0.30      0.51      0.80      0.13
 Poland                   1.75      1.76      1.80      1.72
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto
Editing by Keith Weir)
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