April 12, 2018 / 9:07 AM / a year ago

CEE MARKETS-Romanian bonds ease as CPI hits 5-year high; Serbia seen holding rates

    * High Romanian CPI may dent bond auction
    * Serbian central bank meets; not seen cutting rates further
    * Hungarian bond auction expected to draw strong demand

    By Sandor Peto
    BUDAPEST, April 12 (Reuters) - The leu firmed and Romanian
government bond yields rose slightly after the country reported
a rise in annual inflation to its highest level since 2013,
which may hit demand at a debt auction in Bucharest.
    The inflation increase, driven by the European Union's
fastest wage rises, is in contrast with a retreat in inflation
rates in most of the region.  
    The jump to 5 percent was a tad above analyst forecasts and
coincided with other figures showing a month-on-month fall in
Romania's industrial output in February.

    In annual terms, output was still rising at a robust 6.7
percent rate and growth is seen roaring on, but the rise in
inflation and the current account deficit are fuelling concern
about the economy's balance.
    The trends have been well flagged by the Romanian central
bank and the high inflation figure underpins expectations that
the bank will continue to raise interest rates to push inflation
    The leu, which has been quite stable since the
bank launched its rate hike cycle in January, firmed mildly
against the euro by 0842 GMT.
    Romanian bond yields climbed by a few basis points, with the
5-year paper bid at a yield of 3.99 percent, up 6 basis points.
    An auction of 2024-expiry bonds is likely to attract
"defensive bids" after the inflation figures, around Wednesday's
closing bids of 4.16 percent, ING analysts said in a note.
    "A rejection of the auction is also possible as ROMGBs have
been rather divergent lately, compared to regional
developments." they said.
    The country's bonds missed a decline in yields in Budapest
and Warsaw.
    Polish 5- and 10-year bond yields fell this week to their
lowest levels since 2016, helped by mild March inflation data
which led the Polish central bank to reaffirm its loose policy
stance on Wednesday.
    In Hungary, Prime Minister Viktor Orban's right-wing
government won a third successive term in Sunday's elections,
boosting government bonds as policies remain predictable.
    Hungarian bonds were steady on Thursday ahead of an auction
which traders said was likely to draw solid demand.
    The dinar was steady ahead of the Serbian central
bank meeting, which is expected to keep the region's highest
central bank benchmark rate on hold at 3.25 percent, after a cut
last month.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1055 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3150   25.2980    -0.07%    +0.90%
 crown      >                                       
 Hungary    <EURHUF=  311.2900  311.4400    +0.05%    -0.12%
 forint     >                                       
 Polish     <EURPLN=    4.1885    4.1863    -0.05%    -0.29%
 zloty      >                                       
 Romanian   <EURRON=    4.6620    4.6635    +0.03%    +0.38%
 leu        >                                       
 Croatian   <EURHRK=    7.4200    7.4320    +0.16%    +0.14%
 kuna       >                                       
 Serbian    <EURRSD=  118.2200  118.2300    +0.01%    +0.24%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1128.65  1124.030    +0.41%    +4.68%
 Budapest             38086.30  37971.57    +0.30%    -3.28%
 Warsaw                2274.67   2271.93    +0.12%    -7.58%
 Bucharest             8879.46   8828.34    +0.58%   +14.52%
 Ljubljana  <.SBITOP    832.91    829.29    +0.44%    +3.29%
 Zagreb                1793.46   1805.03    -0.64%    -2.68%
 Belgrade   <.BELEX1    737.88    737.79    +0.01%    -2.88%
 Sofia                  659.79    660.64    -0.13%    -2.61%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7340   -0.0830   +130bps     -8bps
   5-year   <CZ5YT=R    1.1770   -0.0260   +126bps     -3bps
   10-year  <CZ10YT=    1.7790   -0.0090   +128bps     -1bps
   2-year   <PL2YT=R    1.5160    0.0040   +208bps     +1bps
   5-year   <PL5YT=R    2.2310   -0.0110   +232bps     -1bps
   10-year  <PL10YT=    2.9970    0.0160   +250bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.06      1.19      0.90
 Hungary                  0.07      0.10      0.18      0.00
 Poland                   1.73      1.73      1.75      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest; editing by
Andrew Roche)
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