August 30, 2018 / 9:04 AM / 8 months ago

CEE MARKETS-Forint hits 5-week low on Turkey ahead of bond auctions

    * Lira's continuing fall weighs in CEE currencies
    * Forint at 5-week low, bonds seen sold at increased yields

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Aug 30 (Reuters) - The forint weakened to a
five-week low against the euro on Thursday as the Turkish lira's
 continued fall maintained a risk of further spillover
into Central Europe' liquid currency markets.
    The forint and the leu eased about 0.15
percent by 0809 GMT, while the Czech crown and the
zloty were treading water for now.
    "We anticipate further slight weakening of the zloty in
reaction to expected dollar strengthening, further lira
depreciation and worsening of investors’ moods, reflected in
negative sentiment during the Asian session," BZ WBK analysts
said in a note. 
    The region's main equity indices, meanwhile, mostly dropped,
led by Warsaw's 0.7 percent decline, as worries over
the U.S.-China trade war weighed on sentiment in global stock
    In the negative sentiment, Hungarian government bond yields
edged higher by 1-3 basis points ahead of debt agency AKK's
bi-weekly auctions.
    "Earlier, we expected good demand, but yields have
increased," one Budapest-based trader said, adding that the
government was still expected to sell the bonds offered, but at 
higher yield levels.
    Hungary's 10-year bonds traded at 3.39 percent early in the
session, up 3 basis points, the five-year yield rose 2 basis
points to 2.8 percent and the three-year yield was up 1 basis
point at 1.64 percent.
    Most investors believe that a pick-up in Hungary's inflation
to 3.4 percent by July was temporary, and earlier pressure on
the Hungarian central bank (NBH) to give up its ultra-loose
policy has abated, Raiffeisen analyst Stephan Imre said in a
    Markets increasingly question whether the European Central
Bank will reverse its easing policy soon and that gives time for
the NBH to think over its own exit strategy, Imre added.
    The Czech central bank (CNB) is seen as continuing to boost
its interest rates. A year of tightening to fight a rise in
inflation above its 2 percent target has provided little help to
the crown in a period of currency weakness in emerging markets
due to a rally of the dollar.
    Crown weakness among the past weeks' Turkey-induced sell-off
in emerging markets and still-strong Czech wage growth,
evidenced in the government's plan to raise state sector wages
by an average 8 percent next week, make many
analysts believe the CNB could raise rates for a third time in a
row at its September meeting.
    Komercni Banka on Thursday changed its next rate hike call
to next month from November.
    "Given strong core inflation, a weak koruna and the prospect
of sound wage growth, we change our CNB call and add a September
hike to our outlook," it said in an analysis. 
    "We still believe that there will be one more hike in
November and three hikes in next year," the note said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1009 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7480   25.7550    +0.03%    -0.80%
 crown      >                                       
 Hungary    <EURHUF=  326.3000  325.8000    -0.15%    -4.71%
 forint     >                                       
 Polish     <EURPLN=    4.2880    4.2880    +0.00%    -2.60%
 zloty      >                                       
 Romanian   <EURRON=    4.6415    4.6350    -0.14%    +0.82%
 leu        >                                       
 Croatian   <EURHRK=    7.4380    7.4355    -0.03%    -0.10%
 kuna       >                                       
 Serbian    <EURRSD=  118.1300  118.3300    +0.17%    +0.31%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1078.47  1078.850    -0.04%    +0.03%
 Budapest             37108.02  37234.86    -0.34%    -5.76%
 Warsaw                2363.80   2380.68    -0.71%    -3.96%
 Bucharest             8356.26   8332.93    +0.28%    +7.77%
 Ljubljana  <.SBITOP    866.30    865.06    +0.14%    +7.43%
 Zagreb                1825.52   1824.65    +0.05%    -0.94%
 Belgrade   <.BELEX1    733.57    735.68    -0.29%    -3.45%
 Sofia                  628.84    630.41    -0.25%    -7.18%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.4050    0.1120   +199bps    +11bps
   5-year   <CZ5YT=R    1.7120    0.0280   +194bps     +3bps
   10-year  <CZ10YT=    2.1430    0.0260   +175bps     +4bps
   2-year   <PL2YT=R    1.5900    0.0030   +218bps     +0bps
   5-year   <PL5YT=R    2.5010   -0.0080   +273bps     +0bps
   10-year  <PL10YT=    3.1520   -0.0110   +276bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.84      1.96      2.05      1.49
 Hungary                  0.43      0.63      0.83      0.17
 Poland                   1.75      1.80      1.82      1.71
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto)
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