July 13, 2017 / 9:39 AM / 9 days ago

CEE MARKETS-Bonds rebound on Yellen, but trend change not expected

8 Min Read

    * Long-term yields drop as Yellen projects slow tightening
    * Comments unlikely to end debt yield rise trend - traders
    * Romanian, Czech auctions helped by high market liquidity

    By Sandor Peto
    BUDAPEST, July 13 (Reuters) - Central European government
paper firmed slightly as markets were awash in money ahead of
auctions on Thursday and investors expected slower monetary
tightening in the United States.
    Comments from Federal Reserve Chair Janet Yellen late on
Wednesday signalled that the Fed's rate hikes, which make
Central Europe's debt yields relatively less attractive, could
be glacial, at best.
    Regional yields have risen in the past three weeks as the
latest comments from the European Central Bank cemented
expectations that a reversal of its monetary easing could be
near.
    Czech, Hungarian and Polish 10-year yields dropped by about
2 basis points on Thursday, with the Polish paper trading at 3.3
percent at 0832 GMT, tracking a similar move in Bunds.
    Investors in Central Europe closely watched a surge in the
Bund yield to 19-month highs, above 0.5 percent in the past
weeks. Thursday's regional bond yield drop was only a fraction
of the previous rise since late June.
    Currencies retreated from Wednesday's peaks, indicating that
the Fed comments would not become a game changer.
    The forint traded 0.2 percent weaker against the euro at
307.4 at 0839 GMT, off a 4-week high reached on Wednesday.
    "The ECB has been trying to calm markets, but it has become
obvious that their loose policy cannot be maintained forever,"
one Budapest-based fixed income trader said. "The baseline
(expectation for debt markets) has not changed."
    While Central European bond yields are mostly higher then
euro zone peers, some of the region's markets are also helped by
good liquidity.
    The Hungarian central bank has been pumping liquidity into
markets via its unorthodox toolkit in the past year.
    In Romania, large debt redemptions supported government
bonds despite worries that the government's policies will lead
to a jump in the budget deficit and inflation.
    An auction of 19-month Romanian bonds is expected to draw
healthy demand on Thursday, with a likely cut-off yield below
Wednesday's closing bid of 1.28 percent, ING analysts said in a
note.
    "With a cautious tone from the Fed's president yesterday, we
could still see some positive price action today as well, though
ROMGBs have been doing better than peers recently, so maybe
there are limited incentives for market participants to chase
yields lower," they said.
    A good supply in Czech crown cash and cheap money
from foreign currency swaps could also generate strong demand at
a Treasury bill auction in Prague.
    "It is likely we will be moving again strongly to negative
yield, in the first auction in a month and half," a trader said.
                CEE MARKETS  SNAPSH   AT  1039 CET         
                             OT                      
                             CURRENCIES                    
                             Latest  Previo  Daily   Change
                                     us              
                             bid     close   change  in
                                                     2017
 Czech crown                 26.125  26.104  -0.08%   3.38%
                                  0       5          
 Hungary                     307.40  306.75  -0.21%   0.46%
 forint                          00      00          
 Polish zloty                4.2339  4.2347   +0.02   4.02%
                                                  %  
 Romanian leu                4.5645  4.5657   +0.03  -0.65%
                                                  %  
 Croatian kuna               7.4070  7.4095   +0.03   2.00%
                                                  %  
 Serbian dinar               119.99  120.11   +0.10   2.80%
                                 00      00       %  
 Note: daily    calculated   previo  close   1800          
 change         from         us      at      CET     
                             STOCKS                        
                             Latest  Previo  Daily   Change
                                     us              
                                     close   change  in
                                                     2017
 Prague                      1000.5  999.21   +0.13   +8.56
                                  0               %       %
 Budapest                    35852.  35872.  -0.06%   +12.0
                                 28      46              3%
 Warsaw                      2341.6  2341.5   +0.02   +20.2
                                  5       4       %      1%
 Bucharest                   8173.6  8171.9   +0.02   +15.3
                                  9       6       %      7%
 Ljubljana                   806.13  808.17  -0.25%   +12.3
                                                         4%
 Zagreb                      1862.0  1861.5   +0.03  -6.66%
                                  6       6       %  
 Belgrade                    714.80  715.46  -0.09%  -0.36%
 Sofia                       710.26  711.17  -0.13%   +21.1
                                                         2%
                             BONDS                         
                             Yield   Yield   Spread  Daily
                             (bid)   change  vs      change
                                             Bund    in
 Czech                                               spread
 Republic                                            
   2-year                      0.05    0.05   +067b   +5bps
                                                 ps  
   5-year                     0.023       0   +015b   +2bps
                                                 ps  
   10-year                    0.974  -0.017   +040b   +0bps
                                                 ps  
 Poland                                                    
   2-year                     1.821  -0.095   +244b   -9bps
                                                 ps  
   5-year                     2.653    0.01   +278b   +3bps
                                                 ps  
   10-year                    3.318  -0.008   +275b   +0bps
                                                 ps  
                FORWARD      RATE    AGREEMENT             
                             3x6     6x9     9x12    3M
                                                     interb
                                                     ank
 Czech Rep              <PR    0.44    0.52    0.61       0
                IBOR=>                               
 Hungary                <BU    0.21    0.23   0.295    0.15
                BOR=>                                
 Poland                 <WI    1.77    1.79   1.815    1.73
                BOR=>                                
 Note: FRA      are for ask                                
 quotes         prices                               
 **********************************************************
 ****
 
 (Additional reporting by Luiza Ilie in Bucharest, Jason Hovet
in Prague; Editing by Alison Williams)
  
 
 

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