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CEE MARKETS-Bonds firm as Poland holds rates, Czech auction demand hits record
January 11, 2017 / 10:17 AM / 9 months ago

CEE MARKETS-Bonds firm as Poland holds rates, Czech auction demand hits record

* Polish central bank holds fire, news conference at 1500
GMT
    * Czech bond sale draws record demand, yield well in the
negative
    * Crown hits 3-year high in 6-month forwards deals implied
rate

 (Adds Polish rate decision, Czech bond auction)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Jan 11 (Reuters) - Central European
government bonds firmed on Wednesday as record demand at
Prague's first auction this year drove yields deeper into
negative territory and Poland's central bank held policy steady.
    Demand for Czech zero-coupon bonds due in 2018 jumped to a 
32.3 billion crowns ($1.26 billion). The average yield was set
at an all-time low -1.722 percent. 
    Short-term Czech papers trade at yields well below
safe-haven Bunds as investors expect the Czech central bank
(CNB) to drop its cap on the crown currency strength by
mid-2017. That could lead to a 3.5 percent surge of the crown by
year-end according to a Reuters poll of analysts. 
    The CNB introduced the cap in late 2013 to fight deflation
risks.
    But inflation rose to its 2 percent target by December and
recent Czech economic figures have been robust, including 7.9
percent annual surge in November retail sales.
    The bank has more than doubled foreign exchange reserves
since 2013, selling crowns to defend the cap. Fresh data showed
33.9 billion crown jump in its foreign asset in the last 10 days
of December. 
    "The tension on markets is indicating the renewal of
interest in the Czech currency at the end of December and the
connected forex interventions by the CNB were just a warm-up to
pressures that started in the new year," said Radomir Jac, chief
economist of Generali CEE, the firm which gave the most accurate
forecasts for regional currencies in Reuters polls last year.
    "All indications are the CNB is now forced to intervene in
large volumes..." he added. 
    Crown forward contracts have in part priced in a surge of
the currency, but not fully, a Prague-based dealer said.
    The six-month forward implied rate peaked at
26.5838 against the euro on Wednesday, the strongest level since
late 2013.
    Elsewhere, Poland's central bank kept interest rates on hold
at record lows and will hold a news conference at 1500 GMT.
    Analysts have said that a rate hike was as unlikely before
2018 even though inflation is on the rise in the European
Union's eastern wing. 
    Monetary authorities and government budget makers in the
region are still keeping policies loose to support economic
growth and to help wages catch up with the much higher levels in
Western Europe.
    Polish government bond yields were steady or lower, with
2-year papers trading at 1.98 percent, down 4 basis points, and
the zloty firmed 0.1 percent to 4.3708 against the
euro by 0923 GMT.
    
              CEE        SNAPS   AT  1420          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.03   +0.0  -0.05
                            00     25     5%      %
 Hungary                 309.5  309.1  -0.12  -0.22
 forint                    000    150      %      %
 Polish                  4.370  4.373   +0.0  0.78%
 zloty                       0      6     8%  
 Romanian                4.495  4.496   +0.0  0.89%
 leu                         0      8     4%  
 Croatian                7.555  7.563   +0.1  0.00%
 kuna                        0      5     1%  
 Serbian                 123.6  123.6   +0.0  -0.23
 dinar                     300    800     4%      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  927.4  926.0   +0.1   +0.6
                             6      8     5%     3%
 Budapest                33085  33031   +0.1   +3.3
                           .68    .53     6%     8%
 Warsaw                  2015.  2023.  -0.39   +3.4
                            75     64      %     8%
 Bucharest               7232.  7244.  -0.16   +2.0
                            51     11      %     8%
 Ljubljana               745.2  738.8   +0.8   +3.8
                             5      5     7%     5%
 Zagreb                  2076.  2056.   +0.9   +4.0
                            01     04     7%     7%
 Belgrade     <.BELEX15  708.2  712.7  -0.63  -1.27
              >              5      4      %      %
 Sofia                   610.0  609.0   +0.1   +4.0
                             0      6     5%     2%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -1.21  -0.03  -050b  -5bps
              >              9      8     ps  
   5-year     <CZ5YT=RR  -0.26  -0.07   +021  -7bps
              >              4      2    bps  
   10-year    <CZ10YT=R  0.469  0.016   +021   +4bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.16    0.1    0.1      0
              PRIBOR=>                        
 Hungary              <   0.37   0.46   0.55   0.31
              BUBOR=>                         
 Poland               <  1.755  1.795  1.877   1.73
              WIBOR=>                      5  
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
($1 = 25.7230 Czech crowns)

    
 (Additional reporting by Jan Lopatka in Prague; Editing by
Raissa Kasolowsky)

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