August 23, 2018 / 1:59 PM / a year ago

CEE MARKETS-Leu firms as Romanian bond auction draws strong demand

    * Dollar rebound weakens main CEE currencies again
    * Leu bucks fall, CPI decline boosts bids at Romanian
    * Warsaw stocks jump to 4-month high, Lotos rises more than
4 pct 

 (Recasts with Romanian bond auction, stocks)
    By Sandor Peto
    BUDAPEST, Aug 23 (Reuters) - The leu firmed on Thursday as a
sharp decline in Romanian inflation boosted demand in a
government bond auction, pushing yields lower.
    The finance ministry sold 490 million lei worth of
2022-expiry bonds in the auction, well above the 300 million lei
which had originally been offered.
    The average yield of bonds sold dropped to 4.19 percent from
4.52 percent in a tender on June 12. It was also below early
secondary-market levels at 4.25 percent, which was already a
three-month low.
    A surge in wages in central Europe in the past two years had
pushed Romania's inflation to the highest level in the region,
at 5.4 percent in annual terms in June. But inflation slowed to
4.6 percent last month.
    It is still the highest in the region, but the Romanian
central bank (NBR) has cut its inflation forecasts and investors
have scaled back expectations for further hikes in the bank's
benchmark interest rate of 2.5 percent.
    As a result Romanian government bond yields have retreated
from multi-year highs reached a few weeks ago.
    The yield on bonds sold at auction has declined
more than 40 basis points in the past four weeks.
    "Ongoing disinflation (is) 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
note released before the auction.
    "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 (Romanian bonds)
going forward," he added.
    The leu firmed a quarter of a percent to 4.637
versus the euro by 1319 GMT, touching its strongest level since
Aug. 6 when it was knocked by a signal from the NBR that
inflation may not rise much further.
    Other central European currencies eased due to a renewed
buying of the dollar in international markets, after
minutes from the U.S. Federal Reserve's last policy meeting
suggested it was on course to further raise interest rates soon.

    The forint led the weakening, shedding half a
percent to trade at 324.4 versus the euro.
    Regional stock indexes mostly posted modest gains, except
for a robust 1.3 percent rise in Warsaw's blue chip index
 to its highest since the middle of April.
    Refiner Lotos shares rose by more than 4 percent
to a record high, buoyed by technical factors and the company's
strong fundamentals, analysts said.
    Lotos reported a more than threefold jump in second-quarter
profit and a surge in revenue earlier this month. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1519 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7350   25.7010    -0.13%    -0.75%
 crown      >                                       
 Hungary    <EURHUF=  324.4000  322.8900    -0.47%    -4.16%
 forint     >                                       
 Polish     <EURPLN=    4.2853    4.2820    -0.08%    -2.54%
 zloty      >                                       
 Romanian   <EURRON=    4.6370    4.6484    +0.25%    +0.92%
 leu        >                                       
 Croatian   <EURHRK=    7.4400    7.4295    -0.14%    -0.13%
 kuna       >                                       
 Serbian    <EURRSD=  117.9700  118.0600    +0.08%    +0.45%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1078.37  1073.000    +0.50%    +0.02%
 Budapest             36428.40  36365.90    +0.17%    -7.49%
 Warsaw                2326.12   2295.63    +1.33%    -5.49%
 Bucharest             8191.30   8189.52    +0.02%    +5.64%
 Ljubljana  <.SBITOP    868.01    865.26    +0.32%    +7.64%
 Zagreb                1821.72   1826.29    -0.25%    -1.15%
 Belgrade   <.BELEX1    729.93    730.02    -0.01%    -3.93%
 Sofia                  633.37    629.47    +0.62%    -6.51%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.3950    0.0050   +201bps     +1bps
   5-year   <CZ5YT=R    1.7070   -0.0110   +199bps     -1bps
   10-year  <CZ10YT=    2.1400   -0.0260   +180bps     -1bps
   2-year   <PL2YT=R    1.6070   -0.0180   +222bps     -2bps
   5-year   <PL5YT=R    2.4980   -0.0040   +278bps     +0bps
   10-year  <PL10YT=    3.1730   -0.0050   +284bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.81      1.95      2.05      1.48
 Hungary                  0.43      0.60      0.80      0.18
 Poland                   1.75      1.78      1.82      1.71
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto
Editing by Gareth Jones and David Holmes
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