March 22, 2018 / 10:29 AM / a year ago

CEE MARKETS-Bonds, fx firm after Fed decision

    * Poland leads government bond yield fall after Fed meeting
    * Yield curves flatten, long-term bond selling deals

    By Sandor Peto and Marcin Goettig
    BUDAPEST/WARSAW, March 22 (Reuters) - Poland led a rebound
of government bonds and currencies in Central Europe on Thursday
after the Federal Reserve held back from increasing the pace of
this year's rate hikes.    
    Higher U.S. interest rates make assets in European emerging
markets relatively less attractive, and some investors had
expected the Federal Reserve to signal three more rate rises
this year.
    The Federal Reserve raised interest rates and instead
projected two more hikes for this year. 
    That reduced concern that loose monetary policy in Poland
and Hungary could undermine their currencies and bonds. 
    The zloty, the Czech crown and the leu
 firmed 0.1 percent against the euro by 0908 GMT,
drifting off the multi-month lows they reached in the past days.
    The forint, which outperformed this month, eased
0.1 percent.
    Government bonds in the region mostly regained part of the
past week's price loss as yields eased, mainly in five-year or
longer maturities.
    Poland led the fall, with its 10-year yield falling 9 basis
points to 3.284 percent, still above last week's lows at 3.23
percent. Hungary's long-term bond yields dropped 3-5 basis
    "This is happening partly because of positioning: selling
positions built before the Fed meeting are closed," one
Budapest-based fixing income trader said.
    "The other thing is that what the Fed forecasts for the
longer term (in terms of a rise in inflation and interest rates)
is not realistic in the view of many people," the trader added.
    The Czech and Romanian central banks have already started to
follow the Fed's rate rises, rate setters in Budapest and Warsaw
have projected that interest rates could stay low for years.
    The Polish bank cut its inflation forecasts this month. Rate
setter Jerzy Zyzynski said on Thursday that the bank's next rate
move may be a cut rather than a hike. 
    Polish bonds could strengthen across the curve in the next
week or two, ING analysts said in a note.
    "This will be helped by a fall in expectations for rate
hikes and data published on core markets (mainly euro zone),"
they said.
    "The market still prices in significantly more tightening
(about 40 bps until the end of 2019) than suggested by MPC
members' comments," the note added.
    Most analysts in a Reuters poll have projected that the
Romanian central bank will lift interest rates further on April
    But an auction of Romanian bonds, which expire in June 2019,
could draw sufficient demand on Thursday after a rise in
Romanian yields in the past months, Raiffeisen said in a note,
adding that front-end yields could rise further.
            CEE       SNAPSHOT   AT                         
            MARKETS             1008 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3850   25.4050    +0.08%    +0.62%
 crown      >                                       
 Hungary    <EURHUF=  311.6000  311.2700    -0.11%    -0.22%
 forint     >                                       
 Polish     <EURPLN=    4.2253    4.2300    +0.11%    -1.16%
 zloty      >                                       
 Romanian   <EURRON=    4.6650    4.6690    +0.09%    +0.32%
 leu        >                                       
 Croatian   <EURHRK=    7.4430    7.4405    -0.03%    -0.17%
 kuna       >                                       
 Serbian    <EURRSD=  118.3500  118.4500    +0.08%    +0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1128.90  1126.460    +0.22%    +4.71%
 Budapest             38127.86  38236.94    -0.29%    -3.17%
 Warsaw                2319.48   2320.77    -0.06%    -5.76%
 Bucharest             8692.32   8790.59    -1.12%   +12.10%
 Ljubljana  <.SBITOP    820.58    822.77    -0.27%    +1.76%
 Zagreb                1837.99   1839.08    -0.06%    -0.26%
 Belgrade   <.BELEX1    755.45    756.71    -0.17%    -0.57%
 Sofia                  669.83    669.62    +0.03%    -1.12%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8390   -0.0240   +142bps     -1bps
   5-year   <CZ5YT=R    1.3170    0.0170   +137bps     +5bps
   10-year  <CZ10YT=    1.9850    0.0000   +142bps     +3bps
   2-year   <PL2YT=R    1.5560   -0.0100   +214bps     +0bps
   5-year   <PL5YT=R    2.4320   -0.0740   +248bps     -4bps
   10-year  <PL10YT=    3.2960   -0.0760   +273bps     -5bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.97      1.07      1.25      0.90
 Hungary                  0.07      0.10      0.18      0.03
 Poland                   1.73      1.75      1.77      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Alison Williams)
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