November 30, 2018 / 11:34 AM / 5 months ago

CEE MARKETS-Bond yields fall as Polish CPI falls below target range

    * Polish CPI surprises, falling below cbank's 1.5-3.5 pct
    * Polish, Hungarian long-end yields are lowest since
    * Polish inflation seen picking up, GDP growth slowing
    * Warsaw shares retreat from 8-week high

    By Sandor Peto and Alicja Ptak
    BUDAPEST/WARSAW, Nov 30 (Reuters) - Polish and Hungarian
10-year bond yields fell to their mid-year levels on Friday as
developed markets yields and oil prices dropped and Poland
released is lowest inflation figure since 2016.
    The Polish 10-year yield, falling 7 basis points
to 3.04 percent, set a 7-month low, and Hungary's corresponding
yield at 3.2 percent was the lowest since early June.
    "There is a huge U-turn in bear positions. Markets turned
out to be massively wrong" over year-end yield levels, one
Budapest-based fixed income trader said.
    The yields have fallen by about 30 and 70 basis points,
respectively, from peaks in early October, as yields in
developed markets also retreated after a rise. 
    Oil prices, which before October fuelled rises in
consumer price indices across the world and sparked inflation
worries in countries like Hungary, fell to their lowest level in
more than a year, after their worst month in a decade.
    The zloty eased a tad, along with the forint, but
that was caused by an easing of the euro rather than Poland's
figures showing low inflation despite robust economic growth.
    "Zloty is stable because today's data support current MPC
(central bank) view to keep the rates on hold for a long
period," said Mateusz Sutowicz, analysts of Bank Millennium.
    While the economy grew by 5.1 percent in the third quarter
in annual terms, annual inflation fell to 1.2 percent in
November from October's 1.8 percent, below analysts expectation
for a fall to the bottom of the Polish central bank's (NBP)
1.5-3.5 percent target range.
    Analysts said the figures would not lead to a cut in the
NBP's 1.5 percent benchmark rate as energy prices were expected
to boost inflation to around the middle of the target next year.
    The data helped yields drop in Poland and also had an impact
in Hungary, market participants said.
    "Inflation growth next year could be more limited thanks to
that (lower base)," said Miroslaw Budzicki, strategist at PKO BP
in Warsaw.
    "In October the market expected three (NBP interest rate)
increases over the next two years. Now, only one increase of 25
basis points was priced in fully for 2020," he added.
    The breakdown of the Polish economic output figures showed
"the biggest impact of investments on the GDP structure that we
have seen so far in this economic cycle", Santander Bank Polska
economist Grzegorz Ogonek said.
    The was mainly the result of state infrastructure spending,
while earlier data indicate a slowing of investment in the
private sector, Bank Millennium chief economist Grzegorz
Maliszewski said.
    Warsaw's blue-chip stock index fell 1.1 percent,
giving up some ground after a rise to an eight-week high by
            CEE       SNAPSHOT   AT                         
            MARKETS             1124 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9550   25.9710    +0.06%    -1.59%
 crown      >                                       
 Hungary    <EURHUF=  323.6000  323.6000    +0.00%    -3.92%
 forint     >                                       
 Polish     <EURPLN=    4.2892    4.2870    -0.05%    -2.63%
 zloty      >                                       
 Romanian   <EURRON=    4.6605    4.6585    -0.04%    +0.41%
 leu        >                                       
 Croatian   <EURHRK=    7.4150    7.4165    +0.02%    +0.21%
 kuna       >                                       
 Serbian    <EURRSD=  118.2700  118.2400    -0.03%    +0.19%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1066.84  1065.710    +0.11%    -1.05%
 Budapest             39832.80  39861.63    -0.07%    +1.16%
 Warsaw                2278.36   2303.37    -1.09%    -7.43%
 Bucharest             8665.36   8665.36    +0.00%   +11.76%
 Ljubljana  <.SBITOP    822.47    817.92    +0.56%    +2.00%
 Zagreb                1730.30   1730.33    -0.00%    -6.11%
 Belgrade   <.BELEX1    740.58    742.73    -0.29%    -2.53%
 Sofia                  591.84    591.74    +0.02%   -12.64%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7240    0.0750   +232bps     +8bps
   5-year   <CZ5YT=R    1.8480    0.0190   +212bps     +3bps
   10-year  <CZ10YT=    2.0830    0.0120   +177bps     +2bps
   2-year   <PL2YT=R    1.4490   -0.1090   +205bps    -11bps
   5-year   <PL5YT=R    2.5020   -0.0480   +277bps     -4bps
   10-year  <PL10YT=    2.9770   -0.1360   +266bps    -13bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.18      2.30      2.35      2.02
 Hungary                  0.31      0.53      0.84      0.13
 Poland                   1.75      1.76      1.79      1.72
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto
Editing by Peter Graff)
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