October 14, 2016 / 9:51 AM / in 9 months

CEE MARKETS-Short-term bond prices rise, Poland underperforms

8 Min Read

* Hungary's 3-year bonds draw demand after auction
    * CHF loan conversion plans remain a worry in Poland,
Romania
    * Dinar firms, central bank may intervene again

    By Sandor Peto and Ivana Sekularac
    BUDAPEST/BELGRADE, Oct 14 (Reuters) - Short-term government
bonds rose in Central Europe on Friday as higher yields on the
region's paper compared to its western neighbours attracted
investors, although a possible U.S. interest rate rise left the
assets with an uncertain outlook.
    Hungary's 3-year bonds traded at a yield of 1.33 percent at
0750 GMT, compared with -0.66 percent on Germany's corresponding
paper, while the 10-year yield was flat at 2.99 percent.
    The 3-year yield was down 7 basis points from levels before
an auction on Thursday which drew huge demand.
    "That bond is attractive as its yield had surged from 1.22
percent (in the last month)," one Budapest-based trader said.
    That rise in yields came despite ratings agency Standard and
Poor's lifting the country back into investment grade on Sept.
16 in a surprise move. 
    Romania's 3-year yield was bid lower by 6 basis points at
1.49 percent, while its 10-year yield rose 3 basis points.
    Risks of a rise in Polish government spending and Warsaw's
tension with Brussels over the rule of law have kept its bond
yields underpinned, however. 
    They rose 1-2 basis points along the curve, with 10-year
papers trading at 3.04 percent.
    In both Poland and Romania, planned legislation on the
conversion of Swiss franc mortgages partly at the cost of banks
have also weighed on assets. Pressure on bonds is higher in
Poland, Raiffeisen analyst Imre Stephan said in a note.
    Poland's financial regulator KNF said on Thursday that
Polish banks would face bigger than expected costs if a proposal
to make them return excessive currency conversion spreads
charged to clients becomes law.
    Concerns over a Romanian bill on conversions, which
parliament is seen passing on Tuesday, knocked the leu 
down to 3-month lows early this week.
    Rating agency Fitch said on Thursday that Romanian banks
which have relatively large Swiss franc loan portfolios had set
aside sufficient reserves for possible conversion losses.
    The leu was flat at 0844 GMT. The Bucharest bourse's index
 touched an 8-week low, underperforming regional indices
which rose as higher than expected Chinese inflation data helped
Asian and European stocks rebound.
    The dinar firmed 0.1 percent to 122.97 against the
euro, past levels where the central bank sold it in the market
on Wednesday to prevent a strengthening. 
    The bank did not cut its 4 percent benchmark rate on
Thursday, citing an uncertain monetary policy outlook in the
world.
    It could intervene again if the dinar does not stay in the
123-124 range, traders said.
    Demand for the dinar has been boosted by mid-month VAT and
wage payments, but it is also buoyed by the government's fiscal
consolidation policies, traders said.    
    
           CEE MARKETS  SNAPSHOT   AT  1044 CET           
                        CURRENCIES                        
                        Latest    Previous  Daily   Change
                        bid       close     change  in
                                                    2016
 Czech                   27.0260   27.0225  -0.01%  -0.10%
 crown                                              
 Hungary                305.5400  305.8050   +0.09   2.98%
 forint                                          %  
 Polish                   4.2935    4.2920  -0.04%  -0.83%
 zloty                                              
 Romanian                 4.5020    4.5022   +0.00   0.38%
 leu                                             %  
 Croatian                 7.5060    7.5095   +0.05   1.77%
 kuna                                            %  
 Serbian                122.9700  123.0900   +0.10  -1.22%
 dinar                                           %  
 Note:     calculated   previous  close at  1800          
 daily     from                             CET     
 change                                             
                        STOCKS                            
                        Latest    Previous  Daily   Change
                                  close     change  in
                                                    2016
 Prague                   891.96    886.64   +0.60  -6.73%
                                                 %  
 Budapest               28246.89  28123.21   +0.44   +18.0
                                                 %      9%
 Warsaw                  1733.21   1727.55   +0.33  -6.77%
                                                 %  
 Buchares                6866.78   6858.69   +0.12  -1.96%
 t                                               %  
 Ljubljan                 725.36    726.57  -0.17%   +4.20
 a                                                       %
 Zagreb                  1974.93   1971.69   +0.16   +16.8
                                                 %      9%
 Belgrade                 636.76    636.13   +0.10  -1.14%
                                                 %  
 Sofia                    510.30    510.34  -0.01%   +10.7
                                                        2%
                        BONDS                             
                        Yield     Yield     Spread  Daily
                        (bid)     change    vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                 -0.717    -0.033  -006bp   -3bps
                                                 s  
   5-year                 -0.136    -0.011   +034b   -2bps
                                                ps  
                           0.338      0.01   +029b   +0bps
 10-year                                        ps  
 Poland                                                   
   2-year               #VALUE!      0.018  #VALUE   +2bps
                                              !     
   5-year               #VALUE!      0.036  #VALUE   +3bps
                                              !     
                        #VALUE!       0.02  #VALUE   +1bps
 10-year                                      !     
           FORWARD      RATE      AGREEMENT               
                        3x6       6x9       9x12    3M
                                                    interb
                                                    ank
 Czech             <PR      0.28      0.24    0.22       0
 Rep       IBOR=>                                   
 Hungary           <BU      0.76      0.74    0.74    0.87
           BOR=>                                    
 Poland            <WI      1.76     1.725    1.74    1.72
           BOR=>                                    
 Note:     are for ask                                    
 FRA       prices                                   
 quotes                                             
 *********************************************************
 *****
 
 (Additional reporting by Radu Marinas in Bucharest; Editing by
Toby Chopra)

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