May 10, 2018 / 9:10 AM / a year ago

CEE MARKETS-Crown leads firming, Hungary bond sale seen going smoothly

    * First Czech CPI rise in six months helps boost crown
    * Regional currencies firm as dollar is off highs
    * Czech bond yields rise, Hungarian and Polish yields fall
    * Smooth bond sale predicted at Hungarian auction
    * Serbian cbank seen keeping main rate on hold at 3.25 pct

    By Sandor Peto and Robert Muller
    BUDAPEST/PRAGUE, May 10 (Reuters) - The crown led a firming
of Central European currencies and Czech government bonds
extended their losses after March annual data showed the first
pick-up in Czech inflation in six months.
    The rate rose to 1.9 percent from 1.7 percent in March,
adding fuel to expectations for continuing Czech central bank
(CNB) interest rate hikes.  
    The crown firmed half a percent to 25.47 against
the euro by 0814 GMT and the forint and the zloty
 gained 0.3 percent, helped by a retreat of the dollar
from this year's highs against the euro. 
    "There is a combination of two factors - a poor (Czech
bonds) auction yesterday and hawkish Czech central bank, plus
today's inflation data," a Prague-based dealer said.
    "The yields are (still) quite low compared to assumed
central bank's interest rates in the coming period," the dealer
    The yield on Czech 5-year bonds was bid 9 basis
points higher at 1.3 percent, a 6-week high.   
    A jump in Czech yields since Wednesday's weak bond auction 
contrasted with a retreat in yields in Warsaw and Budapest, and
expectations for solid demand at Hungary's bi-weekly bond
    Yields in Romania, where the central bank has launched an
interest rate hike cycle just like the CNB, increased.
    Bonds in core markets were mixed.
    At a U.S. 10-year bond auction on Wednesday, the yield rose
to 2.995 percent, the highest of this maturity since 2014, but
some investors had a positive interpretation.
    "It is a good sign that it did not go above the 3 percent
line... and if U.S. CPI due later today is weak, (bond markets)
can rebound," one Budapest-based fixed income trader said.
    "The increased yield levels (after a global rise this month)
could ensure demand at the Hungarian auction and it will be
smoothly sold," the trader said.
    The government probably cannot sell as much bonds as at its
past two bond auctions, the trader added. 
    It sold bonds worth more than 100 billion forints  ($377.74
million)at each of those auctions, frontloading its 2018
issuance, as a pre-financing of European Union-sponsored
projects boosted the budget deficit in the first months of the
    Elsewhere, the leu did not join the firming of its
regional peers, after Romania reported a widening in its
first-quarter trade deficit.
    Serbia's central bank is expected to keep rates on hold at
its meeting, but some analysts did not rule out that the bank
may repeat the surprise rate cuts delivered at its past two
    The dinar firmed 0.1 percent to 118.17 against the
            CEE       SNAPSHOT   AT                         
            MARKETS             1014 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4700   25.5850    +0.45%    +0.28%
 crown      >                                       
 Hungary    <EURHUF=  314.6000  315.4900    +0.28%    -1.17%
 forint     >                                       
 Polish     <EURPLN=    4.2470    4.2615    +0.34%    -1.66%
 zloty      >                                       
 Romanian   <EURRON=    4.6430    4.6450    +0.04%    +0.79%
 leu        >                                       
 Croatian   <EURHRK=    7.3850    7.3885    +0.05%    +0.61%
 kuna       >                                       
 Serbian    <EURRSD=  118.1700  118.2600    +0.08%    +0.28%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1098.79  1093.010    +0.53%    +1.91%
 Budapest             36772.03  36588.26    +0.50%    -6.62%
 Warsaw                2288.51   2281.12    +0.32%    -7.02%
 Bucharest             8801.27   8750.27    +0.58%   +13.51%
 Ljubljana  <.SBITOP    874.10    847.13    +3.18%    +8.40%
 Zagreb                1824.54   1821.36    +0.17%    -0.99%
 Belgrade   <.BELEX1    736.38    737.47    -0.15%    -3.08%
 Sofia                  650.93    652.18    -0.19%    -3.91%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech Republic                                     spread
   2-year   <CZ2YT=R    0.8640    0.1010   +143bps    +11bps
   5-year   <CZ5YT=R    1.2970    0.0850   +136bps     +8bps
   10-year  <CZ10YT=    1.8640    0.0230   +130bps     +2bps
   2-year   <PL2YT=R    1.5790   -0.0010   +215bps     +1bps
   5-year   <PL5YT=R    2.5050   -0.0160   +256bps     -2bps
   10-year  <PL10YT=    3.2590   -0.0050   +270bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.98      1.10      1.19      0.90
 Hungary                  0.07      0.10      0.18      0.05
 Poland                   1.73      1.75      1.80      1.70
 Note: FRA  are for ask prices                              

($1 = 264.7300 forints)

 (Editing by Richard Balmforth)
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