June 1, 2018 / 10:28 AM / 21 days ago

CEE MARKETS-Polish, Hungarian bonds track Italian yield fall

    * Assets mixed, Italian politics improves sentiment
    * Some bond yields track Italian fall, risks remain
    * Czech bonds underperform, weak crown may prompt rate hike
    * Main regional currencies stay near multi-month lows

    By Sandor Peto
    BUDAPEST, June 1 (Reuters) - Hungarian and Polish government
bond yields fell and their curve flattened on Friday after
Italy's borrowing costs dropped sharply as it moved closer to
forming a government.
    A coalition deal between Italy's League and the 5-Star
Movement could challenge European Union fiscal rules, putting a
limit on the bond recovery, but the move ends some of the
political uncertainty.
    A no-confidence vote in Spain that brought in a new,
Socialist-led government added to political ructions in the
European Union but did not upset bond markets, traders said.
    "We see a bull flattening in the yield curves of both Poland
and Hungary," one Budapest-based fixed income trader said. "The
current (government bond) yield levels still express the view
that we are still a little bit afraid."
    Hungarian yields dropped by 1 to 3 basis points, with the
10-year paper trading at 3.13 percent. Polish yields fell by 1
to 8 basis points and the 10-year yields was at 3.2 percent.
    Romanian and Czech bonds were mixed.
    Bank of America Merrill Lynch analysts said in a weekly note
that Romania's "spreads are flat to Hungary despite worse
fundamentals, suggesting large future deficits aren't captured
in prices." 
    Hungarian bonds should receive support from a possible
upgrade in the country's credit rating by Moody's late on
Friday, Raiffeisen analyst Imre Stephan said in a note.
    He said an expected euro recovery would be a "major driver"
in the Polish market, while the rising likelihood of two rate
hikes in the Czech Republic would support the Czech market.
    The Czech crown has been weaker than the central
bank's forecasts, which has said that may lead to bigger and
faster than expected rate hikes.
    A rally in the dollar and U.S. yields in May had knocked the
main Central European currencies to their weakest and bond
yields to their highest levels for many months.
    The tightly-watched U.S. 10-year yield rose and the dollar
traded on the firmer side of 1.17 versus the euro on Friday.
    Improved sentiment over Italy only partly counterbalanced
that, with investors awaiting key U.S. job data due at 1230 GMT.
    Regional currencies and stocks were mixed. 
    Warsaw's equity index bucked was flat, held back by
a 4.3 percent decline in clothing retailer CC after it
reported May business figures.
    Budapest was driven higher by a 2 percent rise in
heavy-weight OTP Bank, testing the 10,000-forint 
($36.57) level.
    Currencies were mostly slightly weaker against the euro, but
the zloty firmed mildly.  
    
               CEE MARKETS  SNAPSH   AT  1140 CET         
                            OT                      
                            CURRENCIES                    
                            Latest  Previo  Daily   Change
                                    us              
                            bid     close   change  in
                                                    2018
 Czech crown                25.840  25.813  -0.10%  -1.21%
                                 0       5          
 Hungary                    319.80  319.53  -0.08%  -2.90%
 forint                         00      50          
 Polish zloty               4.3150  4.3176   +0.06  -3.23%
                                                 %  
 Romanian leu               4.6665  4.6608  -0.12%   0.23%
 Croatian                   7.3860  7.3885   +0.03   0.57%
 kuna                                            %  
 Serbian                    118.05  118.08   +0.03   0.30%
 dinar                          00      00       %  
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            STOCKS                        
                            Latest  Previo  Daily   Change
                                    us              
                                    close   change  in
                                                    2018
 Prague                     1083.3  1076.1   +0.68   +0.48
                                 7       0       %       %
 Budapest                   35980.  35356.   +1.76  -8.63%
                                15      83       %  
 Warsaw                     2160.4  2157.0   +0.16  -12.22
                                 8       7       %       %
 Bucharest                  8080.1  8018.6   +0.77   +4.21
                                 0       6       %       %
 Ljubljana                  894.72  881.69   +1.48   +10.9
                                                 %      6%
 Zagreb                     1851.9  1854.0  -0.11%   +0.49
                                 8       2               %
 Belgrade                   739.43  740.66  -0.17%  -2.68%
 Sofia                      639.85  636.55   +0.52  -5.55%
                                                 %  
                            BONDS                         
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                    0.966  -0.031   +162b   -6bps
                                                ps  
   5-year                    1.418   0.008   +164b   -4bps
                                                ps  
   10-year                   1.944   0.001   +156b   -4bps
                                                ps  
 Poland                                                   
   2-year                     1.57  -0.001   +222b   -3bps
                                                ps  
   5-year                    2.383  -0.062   +261b  -11bps
                                                ps  
   10-year                   3.197  -0.075   +281b  -12bps
                                                ps  
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
                                                    interb
                                                    ank
 Czech Rep             <PR    1.04    1.16    1.27       0
               IBOR=>                               
 Hungary               <BU   0.225    0.29   0.365    0.12
               BOR=>                                
 Poland                <WI    1.76    1.76     1.8     1.7
               BOR=>                                
 Note: FRA     are for ask                                
 quotes        prices                               
 *********************************************************
 *****
 ($1 = 273.4700 forints)

 (Reporting by Sandor Peto
Editing by Edmund Blair)
  
 
 
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