November 6, 2018 / 10:45 AM / in 9 months

CEE MARKETS-Romanian bond yield sets 6-month low, central bank holds fire

    * Romanian central bank keeps rates on hold as expected
    * Romanian bonds extend rally, supported by repo auction
    * FX, stocks ease slightly ahead of U.S. midterm election,
    * Hungarian bonds yields also drop, Polish bonds flat

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Nov 6 (Reuters) - Romania's 10-year
government bond yields fell to their lowest levels after
repeated liquidity injections into the market from the Romanian
central bank, (NBR) which kept its interest rates on hold on
    Central European markets generally eased slightly in
cautious trading in all asset classes as investors held their
breath ahead of Tuesday's midterm elections in the United States
and the Federal Reserve's two-day meeting from Wednesday.
    Regional currencies including the leu eased by
about 0.1 percent against the euro.
    The NBR, which, like its Czech peer, has increased interest
rates to fight inflation, kept its benchmark rate
on hold at 2.5 percent as expected.
    It is due to hold a news conference at 1300 GMT.
    Since its last rate hike in May, the bank, projecting that
inflation will retreat from its mid-year levels around 5
percent, has managed market interest rates through its liquidity
policy including its repo auctions.
    After a tightening in liquidity in local markets in the past
months, it injected over 16 billion lei into markets through an
auction last week, and further 12 billion lei on Monday.
    With more money in markets, domestic government bonds became
an attractive buy, after a surge in U.S. Treasury yields a month
ago also boosted yields in many emerging markets including
Romania and Hungary.
    Romania's 10- and 5-year bond yields have dropped about 40
basis points and the 2-year yield by almost 30 basis points in
the past weeks.
    The 10-year yield, bid at 4.73 percent, reached
its lowest level in almost six months on Tuesday, and other
Romanian bond yields set multi-week lows.
    Hungarian yields have also retreated in the past weeks and
the 10-year paper was the lowest since early October at 3.55
percent, down 37 basis points from its October peak.
    Polish yields, which are usually more stable and more
willing to track German Bunds, were flat. The 10-year yield
there, trading at 3.18 percent, has declined by only 15 basis
points from its October peak.    
    In Romania, apart from the NBR's liquidity injections,
expectations for a drop in inflation helped push yields lower,
analysts have said.
    "The conduct of the monetary policy stance by the ECB and by
other central banks in the region (Poland and Hungary) would
also allow the BNR to pause further the key rate hiking cycle,"
said Raiffeisen analyst Stephan Imre in a note.
    "Against this stable base rate outlook in the short to
medium term, we believe that the yield pickup of ROMGBs
(Romanian bonds in October) is attractive which has been
also witnessed at yesterday's massively oversubscribed T-bond
auction," he added.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1055 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8400   25.8120    -0.11%    -1.15%
 crown      >                                       
 Hungary    <EURHUF=  322.1500  322.0100    -0.04%    -3.49%
 forint     >                                       
 Polish     <EURPLN=    4.3117    4.3084    -0.08%    -3.14%
 zloty      >                                       
 Romanian   <EURRON=    4.6632    4.6610    -0.05%    +0.35%
 leu        >                                       
 Croatian   <EURHRK=    7.4350    7.4395    +0.06%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.3500  118.3800    +0.03%    +0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1071.37  1072.440    -0.10%    -0.63%
 Budapest             37747.95  37794.87    -0.12%    -4.14%
 Warsaw                2220.11   2233.74    -0.61%    -9.80%
 Bucharest             8596.00   8573.48    +0.26%   +10.86%
 Ljubljana  <.SBITOP    798.38    799.74    -0.17%    -0.99%
 Zagreb                1771.27   1771.45    -0.01%    -3.89%
 Belgrade   <.BELEX1    743.96    740.93    +0.41%    -2.08%
 Sofia                  597.17    596.67    +0.08%   -11.85%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5530    0.0080   +220bps     +2bps
   5-year   <CZ5YT=R    1.8660    0.0160   +204bps     +2bps
   10-year  <CZ10YT=    2.1390    0.0080   +172bps     +1bps
   2-year   <PL2YT=R    1.5390   -0.0120   +219bps     -1bps
   5-year   <PL5YT=R    2.4270   -0.0020   +260bps     +0bps
   10-year  <PL10YT=    3.1830   -0.0030   +276bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.20      2.35      1.96
 Hungary                  0.32      0.61      0.93      0.00
 Poland                   1.76      1.80      1.89      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Matthew Mpoke Bigg)
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