June 1, 2018 / 1:38 PM / 21 days ago

CEE MARKETS-Stocks up, Polish, Hungarian bonds track Italian yield fall

    * Assets mixed, Italian politics improves sentiment
    * Czech bonds underperform, weak crown may prompt rate hike
    * Main regional currencies stay near multi-month lows
    * Slovenian shares test 8-year high ahead of Sunday's
election

 (Adds Slovenian election, updated prices PMI indices)
    By Sandor Peto
    BUDAPEST, June 1 (Reuters) - Central European stocks firmed
and Hungarian and Polish government bond yields fell, with their
curves flattening, on Friday after Italy's borrowing costs
dropped sharply as it formed a new government.
    Slovenian shares tested 8-year highs ahead of snap elections
on Sunday.
    The new Italian government of anti-establishment parties
could challenge European Union fiscal rules, putting a limit on
the bond recovery, but its formation 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 EU
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 6 basis points and the 10-year yields was at 3.22 percent.
    Euro zone member Slovenia's yields, one of the lowest in the
region, rose 1-2 basis points. Ljubljana's stock index
rose almost one percent, approaching an 8-year high, ahead of
the snap elections that the country will hold on Sunday.
    The anti-immigration Slovenian Democratic Party, led by
ex-prime minister Janez Jansa, is expected to win the vote.

    The central bank has warned that the new government must
continue to run tight budgets and continue reforms as Slovenia's
public debt remains high. 
    Elsewhere, 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.
    The region's main currencies shed 0.1 percent against the
euro as the dollar resumed its firming in international markets.
    Stocks mostly rose as the Italian developments improved mood
 in European markets. May PMI manufacturing indices in the
region indicated continues robust growth, with a pick-up in the
pace in Hungary and some slowdown in Poland and the Czech
Republic.  
    Budapest's main index rose 1.9 percent, driven by a
2.7 percent rise in heavyweight OTP Bank, which fought
itself back above the 10,000-forint ($36.57) level.
    
               CEE MARKETS  SNAPSH   AT  1448 CET         
                            OT                      
                            CURRENCIES                    
                            Latest  Previo  Daily   Change
                                    us              
                            bid     close   change  in
                                                    2018
 Czech crown                25.843  25.813  -0.11%  -1.22%
                                 0       5          
 Hungary                    319.77  319.53  -0.07%  -2.89%
 forint                         00      50          
 Polish zloty               4.3150  4.3176   +0.06  -3.23%
                                                 %  
 Romanian leu               4.6662  4.6608  -0.12%   0.24%
 Croatian                   7.3840  7.3885   +0.06   0.60%
 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                     1078.7  1076.1   +0.24   +0.05
                                 0       0       %       %
 Budapest                   36025.  35356.   +1.89  -8.51%
                                58      83       %  
 Warsaw                     2164.1  2157.0   +0.33  -12.07
                                 4       7       %       %
 Bucharest                  8080.1  8018.6   +0.77   +4.21
                                 0       6       %       %
 Ljubljana                  889.86  881.69   +0.93   +10.3
                                                 %      5%
 Zagreb                     1851.6  1854.0  -0.13%   +0.47
                                 2       2               %
 Belgrade                   741.03  740.66   +0.05  -2.47%
                                                 %  
 Sofia                      639.88  636.55   +0.52  -5.55%
                                                 %  
                            BONDS                         
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                    0.917   -0.08   +156b  -12bps
                                                ps  
   5-year                    1.418   0.008   +162b   -6bps
                                                ps  
   10-year                   1.953    0.01   +155b   -5bps
                                                ps  
 Poland                                                   
   2-year                     1.57  -0.005   +221b   -4bps
                                                ps  
   5-year                    2.417  -0.027   +262b  -10bps
                                                ps  
   10-year                   3.217  -0.057   +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    0.28   0.365    0.12
               BOR=>                                
 Poland                <WI    1.76    1.76     1.8     1.7
               BOR=>                                
 Note: FRA     are for ask                                
 quotes        prices                               
 *********************************************************
 *****
 
 (Additional reporting by Marja Novak in Ljubljana
Editing by Mark Heinrich)
  
 
 
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