September 27, 2018 / 9:30 AM / 8 months ago

CEE MARKETS-Bond yields track Bunds lower ahead of Hungary's auction

    * Polish, Hungarian yields drop as Fed does not surprise
    * Crown eases further on less hawkish than expected CNB
    * Leu also underperforms on doubt over further rate hikes

    By Sandor Peto
    BUDAPEST, Sept 27 (Reuters) - Central European government
bond yields mostly tracked Bunds lower on Thursday after the
Federal Reserve's comments following its interest rate hike on
Wednesday did not suggest an acceleration in its tightening.
    Higher U.S. interest rates can make assets in the region
less attractive.
    A rally of the dollar earlier this year often caused selling
in emerging markets.
    The greenback's rebound against a currency basket and
against the euro did not hurt Central European currencies on
Thursday, while a retreat of U.S. Treasury yields helped Polish
and Hungarian government bonds.
    Poland's 10-year government bond yield dropped 4 basis
points to 3.2065 percent.
    Hungary's corresponding yield, and its two-year yield fell 2
basis points, to 3.58 and 1.78 percent, respectively, even
though the government holds its bi-weekly bond auction on
Thursday and yields often rise ahead of primary sales.
    "The event risk represented by the Fed meeting has passed,"
one Budapest-based fixed income trader said, adding that the
bonds offered at the tender could be sold smoothly.
    "Some selling pressure may remain (in the secondary market),
but nothing special," the trader added.
    Czech and Romanian bonds remained mixed.
    The Czech crown and the leu eased
slightly against the euro, underperforming the forint
and the zloty, which firmed a tad.
    The leu set a new 6-week low at 4.664 and got near
three-month lows.
    The crown traded at its weakest levels since Sept. 10 even
though the Czech central bank <CNB) delivered its third straight
rate hike on Wednesday, bringing its main rate in level with the
Polish central bank's 1.5 percent benchmark rate and increasing
its spread over Hungary's 0.9 percent central bank rate.
    The hike had been expected and priced in, while the CNB's
comments after the decision proved to be less hawkish than some
investors had expected.
    Governor Jiri Rusnok said the bank was likely to raise
interest rates again this year, but stopped short of promising
the hike which markets had already priced in.
    The Romanian central bank, which started to increase its
interest rates in January, shifted to less hawkish rhetoric
months ago, trusting a fast retreat in inflation which reached
the region's highest level at 5.4 percent by June.
            CEE       SNAPSHOT   AT                         
            MARKETS             1029 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7080   25.6880    -0.08%    -0.65%
 crown      >                                       
 Hungary    <EURHUF=  323.4500  323.5100    +0.02%    -3.88%
 forint     >                                       
 Polish     <EURPLN=    4.2759    4.2776    +0.04%    -2.33%
 zloty      >                                       
 Romanian   <EURRON=    4.6615    4.6595    -0.04%    +0.39%
 leu        >                                       
 Croatian   <EURHRK=    7.4270    7.4272    +0.00%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.3500  118.4700    +0.10%    +0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1102.82  1100.770    +0.19%    +2.29%
 Budapest             36058.39  35996.04    +0.17%    -8.43%
 Warsaw                2289.77   2304.45    -0.64%    -6.97%
 Bucharest             8372.61   8374.90    -0.03%    +7.98%
 Ljubljana  <.SBITOP    840.94    840.05    +0.11%    +4.29%
 Zagreb                1785.74   1790.04    -0.24%    -3.10%
 Belgrade   <.BELEX1    724.19    725.74    -0.21%    -4.69%
 Sofia                  622.83    623.10    -0.04%    -8.06%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5350    0.0220   +207bps     +4bps
   5-year   <CZ5YT=R    1.8850    0.0160   +199bps     +4bps
   10-year  <CZ10YT=    2.1800   -0.0250   +168bps     +1bps
   2-year   <PL2YT=R    1.5470   -0.0170   +208bps     +0bps
   5-year   <PL5YT=R    2.5370   -0.0080   +264bps     +1bps
   10-year  <PL10YT=    3.2210   -0.0210   +272bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.03      2.15      2.29      1.58
 Hungary                  0.40      0.62      0.89      0.19
 Poland                   1.76      1.80      1.85      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Toby Chopra)
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