* Romanian election on Sunday, parties back loose budget
* Romanian assets buck CEE bond rebound, stock retreat
* Fears of ECB tapering recede
* Czech inflation boosts expectations of crown cap removal
(Adds Polish stocks falling, Czech central bank comments)
By Sandor Peto and Luiza Ilie
BUDAPEST/BUCHAREST, Dec 9 Investor caution about
the outcome of Romania's parliamentary election on Sunday kept
leu-denominated government bonds weaker than their Central
European peers on Friday.
Bonds were still recovering from the European Central Bank's
surprise decisions on Thursday to extend its asset purchases
until end-2017 but slow the pace from April.
"Initially, people interpreted (the ECB decisions) as
tapering, but the comments later cushioned the blow," one
Budapest-based bond trader said.
Czech, Hungarian and Polish bond yields dropped 1 to 3 basis
points along the curve.
Romanian yields were steady to higher. The leu
Romanian stocks firmed slightly, while Polish stocks
fell 1.3 percent on profit-taking after hitting a
series of multi-month highs this week.
Analysts said the Bucharest bourse's prospects hinged on
whether the new government pursues plans to list minority stakes
in state-owned energy and transport firms.
Both the Romanian Social Democrats (PSD), who lead opinion
polls with 40-44 percent of votes, and the second-placed
National Liberal Party, with 18-27 percent backing, support the
past two years' policy of robust wage hikes and tax cuts.
Government spending could pick up late this year, boosting
liquidity in markets, which could keep a lid on debt yields. The
European Commission sees the budget deficit, if not reined in,
quadrupling next year to 3.2 percent of economic output.
"A PSD-led government is more likely to delay fiscal
consolidation than a centre-right National Liberal Party...-led
government," said Economist Intelligence Unit analyst Maximilien
Bonds could react to external news - ECB bond purchases, Fed
policy - rather than anything internal, at least in the first
part of 2017, one bond trader said.
A Reuters poll of analysts has indicated that Romania's
central bank is unlikely to react to the fiscal loosening soon,
but by late 2017 it may become the first of the region's main
central banks to hike rates.
The ECB's extended stimulus underpinned Wednesday's Polish
central bank comments that a rate hike before 2018 is unlikely,
and the Czech central bank's pledge to remove its ceiling on the
crown's value, at 27 against the euro, around mid-2017.
The plan got further backing from figures showing a pick-up
in annual inflation to 1.5 percent in November, the highest
since June 2013.
"The published figures represent an inflationary risk to the
CNB's current forecast, which assumes that the (weak crown)
exchange rate will be used as a monetary policy instrument until
mid-2017," the bank said.
CEE SNAPSHOT AT 1509 CET
Latest Previous Daily Change
bid close change in 2016
Czech 27.0320 27.0505 +0.07% -0.13%
Hungary 314.6000 314.3350 -0.08% 0.01%
Polish 4.4510 4.4449 -0.14% -4.34%
Romanian 4.5005 4.4990 -0.03% 0.41%
Croatian 7.5330 7.5355 +0.03% 1.41%
Serbian 123.3000 123.3500 +0.04% -1.48%
Note: calculated previous close at 1800
daily from CET
Latest Previous Daily Change
close change in 2016
Prague 903.71 899.57 +0.46% -5.50%
Budapest 30473.30 30629.48 -0.51% +27.39%
Warsaw 1895.79 1921.08 -1.32% +1.97%
Buchares 6886.73 6861.40 +0.37% -1.68%
Ljubljan 705.46 703.87 +0.23% +1.34%
Zagreb 1984.17 1988.67 -0.23% +17.43%
Belgrade 719.52 717.08 +0.34% +11.71%
Sofia 581.61 579.97 +0.28% +26.19%
Yield Yield Spread Daily
(bid) change vs Bund change in
2-year -0.697 0.014 +006bp +4bps
5-year -0.14 -0.013 +032bp +5bps
<CZ10YT=RR 0.563 -0.017 +023bp +3bps
10-year > s
2-year 1.967 -0.031 +272bp -1bps
5-year 2.871 0.003 +333bp +7bps
<PL10YT=RR 3.606 -0.011 +328bp +4bps
10-year > s
FORWARD RATE AGREEMENT
3x6 6x9 9x12 3M
Czech <P 0.28 0.25 0.25 0
Hungary <B 0.37 0.41 0.5 0.4
Poland <W 1.755 1.77 1.805 1.73
Note: are for
FRA ask prices
(Additional reporting by Jason Hovet in Prague/Bartosz
Chmielewski in Warsaw; Editing by Toby Chopra/Ruth Pitchford)