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6 months ago
CEE MARKETS-Bonds retreat as CPI rises, crown cap speculation surging
January 13, 2017 / 3:12 PM / 6 months ago

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

7 Min Read

* 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

 (Adds poll on Czech crown cap exit date, Czech central bank
interventions in January)
    By Sandor Peto
    BUDAPEST, Jan 13 (Reuters) - Government bond yields mostly
rose in Central Europe on Friday as figures released in Hungary
and Romania showed inflation rising across the region.
 
    Ultra-low Czech bond yields rebounded after robust buying
amid speculation about 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. Although it remained negative at
-0.5 percent, the new government is continuing to loosen the
budget, which is expected to push up inflation.
    Romanian short-term government bond yields rose, with the
3-year paper bid at 1.7 percent, up 6 basis points.
    Romanian core inflation remained surprisingly subdued, ING
analysts 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 its 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.
    The 2-year Czech bond yield rose 15 basis points to -1.12
percent, still 41 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. 
    An overwhelming majority of analysts polled by Reuters on
Friday saw the bank ending the cap as soon as the second
quarter, a marked shift since Tuesday when more than half of
those polled projected a later exit.  
    The bank bought around 9 billion euros of foreign currency
in the first 10 days of January to hold the crown back.
 
    "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 added.
    
              CEE        SNAPS   AT  1550          
              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                 307.7  307.1  -0.17  0.36%
 forint                    000    650      %  
 Polish                  4.378  4.376  -0.05  0.58%
 zloty                       5      4      %  
 Romanian                4.494  4.492  -0.03  0.91%
 leu                         0      9      %  
 Croatian                7.525  7.535   +0.1  0.40%
 kuna                        0      5     4%  
 Serbian                 123.6  123.7   +0.1  -0.26
 dinar                     700    900     0%      %
 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                  930.4  928.8   +0.1   +0.9
                             3      9     7%     6%
 Budapest                32905  32966  -0.19   +2.8
                           .06    .42      %     2%
 Warsaw                  2014.  2022.  -0.41   +3.4
                            58     95      %     2%
 Bucharest               7140.  7178.  -0.53   +0.7
                            19     33      %     8%
 Ljubljana               735.8  741.4  -0.76   +2.5
                             1      6      %     4%
 Zagreb                  2075.  2069.   +0.3   +4.0
                            90     59     0%     6%
 Belgrade     <.BELEX15  712.3  714.5  -0.30  -0.70
              >              3      0      %      %
 Sofia                   602.2  607.3  -0.83   +2.7
                             7      3      %     0%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -1.11  0.149  -042b   +14b
              >              9            ps     ps
   5-year     <CZ5YT=RR  -0.34  -0.03   +011  -6bps
              >              6      4    bps  
   10-year    <CZ10YT=R  0.326  -0.05  -003b  -10bp
              R>                    2     ps      s
 Poland                                            
   2-year     <PL2YT=RR  2.027  0.015   +273   +1bp
              >                          bps      s
   5-year     <PL5YT=RR  2.923  0.059   +338   +4bp
              >                          bps      s
   10-year    <PL10YT=R  3.646  0.073   +329   +3bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.17   0.11   0.11      0
              PRIBOR=>                        
 Hungary              <   0.38   0.46   0.55    0.3
              BUBOR=>                         
 Poland               <   1.76  1.795   1.87   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Radu Marinas in Bucharest and Jason
Hovet in Prague; Editing by Andrew Roche)

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