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7 months ago
CEE MARKETS-Bonds retreat as CPI rises, crown cap speculation watched
January 13, 2017 / 11:21 AM / 7 months ago

CEE MARKETS-Bonds retreat as CPI rises, crown cap speculation watched

* Hungary's inflation highest since July 2013
    * Bond yields rise as CPI ticks up across region
    * Crown cap exit speculation keeps Czech markets in frenzy

    By Sandor Peto
    BUDAPEST, Jan 13 (Reuters) - Government bond yields mostly
rose in Central Europe as figures released in Hungary and
Romania on Friday underpinned that inflation is rising across
the region. 
    Ultra low Czech bond yields also rebounded after robust
buying amid speculation of a surge in the crown later
this year, which some investors fear has been overdone.
    Hungary's annual inflation jumped to 1.8 percent in
December.
    Romania's figure also rose. Even though it remained in the
negative at -0.5 percent, the new government continues to loosen
the budget, which is expected to push up inflation.
    Romanian short-term government bond yields rose, with the
5-year paper bid at 2.6 percent, up 11 basis points, and
Hungary's corresponding yield rose 5 basis points to 1.9
percent.
    Romanian core inflation remained surprisingly subdued, ING
analysts in Bucharest said in a note, but "the outlook for 2017
remains marked by uncertainties, mostly related to the fiscal
outlook".
    Analysts said central banks in the region could keep their
policies loose as inflation is still at the low end of their
target ranges or below it.
    Hungary's central bank could soon drop from its statement
the willingness to use non-conventional tools to ease policies
further, "but we do not expect a tightening of conditions yet,"
Takarekbank analysts said in a note.
    Pressure on the region's long-term bonds has eased in the
past weeks as U.S. Treasury yields and the dollar retreated.
    But signs that the European Central Bank may further taper
its asset buying programme, a flight of labour to richer Western
countries and fiscal policy loosening in the region pose risks,
analysts said.
    The 10-year Czech bond yield rose 7 basis points to 0.446
percent, but the 2-year yield was flat at -1.268 percent, 55
basis points below the corresponding safe-haven Bund yield.
    Czech markets have become a bonanza of speculation due to
expectations that in the middle of 2017 the central bank will
abandon its cap, which has kept the crown weaker than 27 against
the euro for years, and the currency could surge. 
    "There was a bit of panic, especially on Wednesday. So
volumes (so far this year) can be huge," one Prague-based dealer
said.
    A huge amount of euro selling positions against the crown 
has accumulated, and is growing further, making hard to predict
how the Czech currency will move later this year, ING analysts
said in a note.
    "The price action on the (crown cap) exit day may therefore 
be tricky," they add
              CEE        SNAPS   AT  1053          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02   +0.0  -0.05
                            00     55     2%      %
 Hungary                 307.2  307.1  -0.01  0.52%
 forint                    100    650      %  
 Polish                  4.373  4.376   +0.0  0.70%
 zloty                       3      4     7%  
 Romanian                4.495  4.492  -0.05  0.89%
 leu                         0      9      %  
 Croatian                7.528  7.535   +0.1  0.36%
 kuna                        0      5     0%  
 Serbian                 123.6  123.7   +0.0  -0.27
 dinar                     800    900     9%      %
 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                  928.9  928.8   +0.0   +0.7
                             1      9     0%     9%
 Budapest                32920  32966  -0.14   +2.8
                           .49    .42      %     7%
 Warsaw                  2017.  2022.  -0.25   +3.5
                            91     95      %     9%
 Bucharest               7141.  7178.  -0.52   +0.7
                            16     33      %     9%
 Ljubljana               737.5  741.4  -0.53   +2.7
                             0      6      %     7%
 Zagreb                  2065.  2069.  -0.19   +3.5
                            60     59      %     5%
 Belgrade     <.BELEX15  710.4  714.5  -0.57  -0.97
              >              2      0      %      %
 Sofia                   603.2  607.3  -0.68   +2.8
                             0      3      %     6%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -1.26      0  -055b   +0bp
              >              8            ps      s
   5-year     <CZ5YT=RR  -0.30  0.011   +018   +1bp
              >              1           bps      s
   10-year    <CZ10YT=R  0.446  0.067   +013   +7bp
              R>                         bps      s
 Poland                                            
   2-year     <PL2YT=RR  2.051  0.039   +277   +4bp
              >                          bps      s
   5-year     <PL5YT=RR  2.898   0.03   +338   +3bp
              >                          bps      s
   10-year    <PL10YT=R    3.6  0.033   +329   +3bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.17    0.1    0.1      0
              PRIBOR=>                        
 Hungary              <   0.38   0.46   0.55    0.3
              BUBOR=>                         
 Poland               <   1.76  1.795   1.88   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Radu Marinas in Bucharest and Jason
Hovet in Prague; Editing by Janet Lawrence)

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