March 31, 2017 / 2:27 PM / 4 months ago

CEE MARKETS-Crown roller coasters as investors mull cap removal impact

7 Min Read

    * Crown firms, rebounding from 18-month lows vs the euro
    * Czech commitment to keep cap on crown ends on Friday
    * Roller coaster heralds further volatility in Czech markets
    * Crown long closings can create demand for other CEE
units-dealer

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, March 31 (Reuters) - The Czech crown firmed
up, reversing an early slide to 18-month lows against the euro,
as the central bank's commitment to capping its value came to an
end on Friday.
    The currency's spot value and implied rates in forward deals
have been on a roller coaster since the Czech central bank's
(CNB) Thursday meeting.
    The bank confirmed that its commitment to keep the crown
weaker than 27 per euro would expire at the end of the first
quarter.
    It also omitted from its statement a line saying it would
end its 3-1/2 year-old "weak crown regime" around the middle of
the year, meaning it could potentially remove the cap any time
after Friday.
    It is highly uncertain how the crown will move once it is
set free, and the recent days' movements gave investors a
feeling of a likely surge in volatility.
    The CNB has spent tens of billions of euros in the last few
months defending the cap as many investors speculated that the
strong Czech economy could boost the crown once the policy is
abandoned.
    As the exit may be near, they are concerned that a huge
amount of accumulated crown buying positions could raise 
questions on how many further buyers come after the cap is gone.
    The crown, after setting a new 18-month low in
early trade at 27.252, rebounded to 27.024 by 1338 GMT, a
quarter percent firmer than at Thursday's close.  
    In its implied forward rates, it also rebounded from
multi-month lows which it set at weaker levels than the current
cap.
    The bid implied in one-month forward deals
jumped  to 26.913 from a nine-month low at 27.147. The implied
rate in one-year forwards surged to 26.646 from a
seven-month low of 26.95.
    "The buying (euro for crown) fever has disappeared for a
while and the interest to sell is still quite big," one
Prague-based trader said.
    Czech bonds were mixed after Thursday's 10 basis point fall
in yields.
    Other central European bond markets were bullish, with
Polish yields trading near their lowest levels this year and
Hungarian yields near multi-week lows.
    The forint firmed 0.1 percent against the euro.
The zloty eased 0.4 percent but remains near 17-month
highs.
    "The euro has been easing against everything (in the past
week) as earlier expectations for euro zone monetary tightening
were overdone," one Budapest-based dealer said.
    "I do not rule out that some investors who close positions
in the Czech crown will reinvest the money elsewhere in Central
Europe, including the forint," the dealer added.
    
              CEE        SNAPS   AT  1538          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.09   +0.2  -0.06
                            40     40     6%      %
 Hungary                 308.2  308.6   +0.1  0.18%
 forint                    500    600     3%  
 Polish                  4.229  4.213  -0.40  4.12%
 zloty                       8      1      %  
 Romanian                4.552  4.553   +0.0  -0.38
 leu                         5      3     2%      %
 Croatian                7.446  7.445  -0.01  1.47%
 kuna                        0      5      %  
 Serbian                 123.7  123.9   +0.1  -0.33
 dinar                     600    500     5%      %
 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                  980.6  983.6  -0.31   +6.4
                             1      7      %     0%
 Budapest                31710  32144  -1.35  -0.91
                           .72    .67      %      %
 Warsaw                  2186.  2209.  -1.02   +12.
                            62     10      %    25%
 Bucharest               8064.  8018.   +0.5   +13.
                            56     47     7%    83%
 Ljubljana               774.7  772.0   +0.3   +7.9
                             0      0     5%     6%
 Zagreb                  1962.  1953.   +0.4  -1.64
                            07     39     4%      %
 Belgrade     <.BELEX15  732.5  733.5  -0.14   +2.1
              >              1      5      %     1%
 Sofia                   633.8  633.0   +0.1   +8.0
                             3      4     2%     8%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.57  0.004   +015  -2bps
              >              3           bps  
   5-year     <CZ5YT=RR  0.176  0.039   +055   +3bp
              >                          bps      s
   10-year    <CZ10YT=R  0.937  -0.04   +060  -5bps
              R>                         bps  
 Poland                                            
   2-year     <PL2YT=RR  #VALU  -0.03  #VALU  -6bps
              >           E!        8   E!    
   5-year     <PL5YT=RR  #VALU  -0.03  #VALU  -4bps
              >           E!            E!    
   10-year    <PL10YT=R  #VALU  -0.01  #VALU  -2bps
              R>          E!        3   E!    
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.28   0.32   0.35      0
              PRIBOR=>                        
 Hungary              <   0.19   0.25   0.34   0.18
              BUBOR=>                         
 Poland               <  1.751  1.769  1.801   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Reporting by Sandor Peto; Editing by Hugh Lawson)
  
 
 

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