September 25, 2018 / 9:30 AM / 8 months ago

CEE MARKETS-Bonds yields rise, Hungary shielded by Eurobond issue

    * Czech, Polish bond yields track core market peers higher
    * Hungary launches 7-year euro bond, forint bonds steady
    * EU court case may weigh on Polish bonds - analysts

    By Sandor Peto
    BUDAPEST, Sept 25 (Reuters) - A Hungarian euro-denominated
bond issue put a lid on the country's forint bond yields on
Tuesday, while Czech and Polish yields tracked U.S. and German
peers higher.
    Hungarian 10-year papers traded at a yield of 3.585 percent
early in the session, about unchanged from their previous close,
even though above Monday's lows around 3.53 percent.
    Poland's corresponding yield was bid higher by 3 basis
points at 3.3 percent, while the Czech bid rose 2 basis points
to 2.23 percent.
    Yields in U.S. and euro zone markets have come under upwards
pressure in the past days.
    Inflation expectations have been fuelled by a rise in crude
prices, a trade war between the United States and its partners,
and because European Central Bank chief Mario Draghi predicted a
vigorous euro zone inflation pick-up on Monday.

    Hungary launched the rare foreign currency bond issue on
Tuesday after Monday's news about consultations with foreign
    The issue is a 7-year euro-denominated benchmark bond, the
IFR financial news service, a Thomson Reuters unit, said, adding
that the bond would be priced on Tuesday. Government debt
management agency AKK declined further comment.
    The sale reduces the need to sell forint-denominated bonds
in the domestic market amid concerns that a dispute with the
European Commission could delay funding to Hungarian projects
from the European Union.
    The projects have been pre-financed by the government,
causing a huge gap in its 2018 budget.
    "Draghi's comments on inflation have lifted yields (in the
region), and the fx bond issue helped the Hungarian market to
escape the rise," one Budapest-based fixed income trader said.
    The forint eased 0.2 percent against the euro,
while its main Central European peers were steady, but trading
at 324.35 at 0815 GMT, it stayed in the past weeks' narrow
    The yield advantage of Hungarian yields over Poland could
narrow in the short term due to Monday's news that the EU sued
Poland in its Court of Justice over the ruling party's changes
to the judiciary, Raiffeisen analysts said in a note.

    Political news rarely has a significant or lasting impact on
markets in Central Europe.
    Hungary is expected to veto an EU procedure against Poland,
which could otherwise threaten it with losing its EU voting
rights, but a Court of Justice ruling does not need to be
approved by EU governments, and the EU may ask a Court to impose
a financial penalty, Santander Bank analysts said in a note.
            CEE       SNAPSHOT   AT                         
            MARKETS             1015 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6180   25.6180    +0.00%    -0.30%
 crown      >                                       
 Hungary    <EURHUF=  324.3500  323.6000    -0.23%    -4.14%
 forint     >                                       
 Polish     <EURPLN=    4.2990    4.2991    +0.00%    -2.85%
 zloty      >                                       
 Romanian   <EURRON=    4.6590    4.6580    -0.02%    +0.44%
 leu        >                                       
 Croatian   <EURHRK=    7.4300    7.4255    -0.06%    +0.00%
 kuna       >                                       
 Serbian    <EURRSD=  118.1500  118.2400    +0.08%    +0.30%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1100.79  1093.460    +0.67%    +2.10%
 Budapest             35847.78  35786.54    +0.17%    -8.96%
 Warsaw                2284.20   2280.60    +0.16%    -7.19%
 Bucharest             8332.43   8377.37    -0.54%    +7.46%
 Ljubljana  <.SBITOP    850.32    857.27    -0.81%    +5.45%
 Zagreb                1807.97   1810.29    -0.13%    -1.89%
 Belgrade   <.BELEX1    729.02    730.56    -0.21%    -4.05%
 Sofia                  623.90    623.48    +0.07%    -7.90%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5650    0.1690   +209bps    +17bps
   5-year   <CZ5YT=R    1.9100    0.0400   +201bps     +3bps
   10-year  <CZ10YT=    2.2340    0.0160   +171bps     +0bps
   2-year   <PL2YT=R    1.6020    0.0190   +213bps     +2bps
   5-year   <PL5YT=R    2.5860    0.0300   +268bps     +2bps
   10-year  <PL10YT=    3.3000    0.0340   +278bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.95      2.14      2.26      1.56
 Hungary                  0.41      0.63      0.89      0.19
 Poland                   1.78      1.82      1.87      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto;
Editing by Alison Williams)
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