August 23, 2018 / 9:14 AM / a year ago

CEE MARKETS-Leu bucks CEE FX weakening, solid auction seen in Bucharest

    * Dollar rebound weakens main CEE currencies again
    * Leu bucks the decline, CPI fall supports Romanian bonds
    * Romania auctions 2022-expiry bonds

    By Sandor Peto
    BUDAPEST, Aug 23 (Reuters) - The leu bucked a weakening of
Central European currencies on Thursday ahead of a Romanian
government bond auction which could generate solid demand.
    Central European currencies have mostly tracked the dollar
in the past four months, weakening when investors bought the
rallying greenback.
    After some retreat earlier this week amid U.S. domestic
political tensions, the dollar rebounded against a basket
of currencies on Thursday. In response, the main currencies in
the European Union's eastern wing eased versus the euro.
    The relatively volatile forint led the decline,
shedding half a percent, to trade at 324.4.
    The Polish zloty eased 0.2 percent to 4.2905, drifting off
2-week highs reached earlier this week, and towards the 4.3
psychological line.
    The Czech crown also weakened by 0.2 percent to
25.745, a level which maintains expectations for further
interest rate increases by the Czech central bank.
    The leu, which is more closely managed than the other three
units, held steady at 4.647.
    Romania saw the biggest increase in inflation this year amid
a regionwide surge in wages to prevent a further flow of workers
into better-paid jobs in Western Europe.
    The Romanian central bank, like its Czech counterpart, has
also raised interest rates.
    But annual inflation fell to 4.6 percent in July
from 5.4 percent in June - still easily the highest level in the
region - and is expected to retreat further in the rest of the
    The Romanian central bank's optimism on the economy has
reduced expectations for further monetary tightening, though
without hurting the leu as dollar buying in global markets
subsided in August, while it helped Romanian government debt
    "We still see some value left in ROMGBs (Romanian government
bonds) with ongoing disinflation likely to trigger further
pricing-out of rate hike expectations and widen the real yield
level going forward," Raiffeisen analyst Stephan Imre said in a
    The 2022-expiry bonds on offer at a government tender on
Thursday performed well this month despite a new sell-off in
emerging markets last week due to the Turkish lira crisis, he
    The yield on the bonds was flat around a 3-month
low of 4.25 percent on Thursday. It has declined 33 basis points
so far this month, while the corresponding Polish yield
, trading at 2.21 percent, changed little.
    "We maintain our positive short-term view on ROMGBs mainly
given the attractive yield-pickup versus peers," Imre said.
    "In the longer term, though, the looming (Romanian) fiscal
risks could begin to weigh significantly on the currency, so we
see rather FX than pricing risks for ROMGBs going forward," he
            CEE       SNAPSHOT   AT                         
            MARKETS             1031 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7450   25.7010    -0.17%    -0.79%
 crown      >                                       
 Hungary    <EURHUF=  324.4000  322.8900    -0.47%    -4.16%
 forint     >                                       
 Polish     <EURPLN=    4.2905    4.2820    -0.20%    -2.66%
 zloty      >                                       
 Romanian   <EURRON=    4.6470    4.6484    +0.03%    +0.70%
 leu        >                                       
 Croatian   <EURHRK=    7.4350    7.4295    -0.07%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  117.9600  118.0600    +0.08%    +0.46%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1076.66  1073.000    +0.34%    -0.14%
 Budapest             36516.54  36365.90    +0.41%    -7.27%
 Warsaw                2304.52   2295.63    +0.39%    -6.37%
 Bucharest             8176.09   8189.52    -0.16%    +5.45%
 Ljubljana  <.SBITOP    866.84    865.26    +0.18%    +7.50%
 Zagreb                1824.15   1826.29    -0.12%    -1.02%
 Belgrade   <.BELEX1    729.54    730.02    -0.07%    -3.98%
 Sofia                  631.37    629.47    +0.30%    -6.80%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5060    0.1170   +211bps    +11bps
   5-year   <CZ5YT=R    1.7580    0.0400   +203bps     +4bps
   10-year  <CZ10YT=    2.1540   -0.0120   +181bps     -1bps
   2-year   <PL2YT=R    1.6240   -0.0010   +223bps     -1bps
   5-year   <PL5YT=R    2.5030    0.0010   +278bps     +0bps
   10-year  <PL10YT=    3.1820    0.0040   +284bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.81      1.95      2.05      1.48
 Hungary                  0.46      0.62      0.82      0.19
 Poland                   1.75      1.78      1.82      1.71
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Gareth Jones)
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