September 20, 2018 / 9:34 AM / 8 months ago

CEE MARKETS-Forint retreats on lingering dispute over EU funds

    * Hungaria's forint underperforms against EU peers
    * Investors continue to digest Hungarian central bank
    * Romanian leu steady despite spat within ruling party

    By Sandor Peto
    BUDAPEST, Sept 20 (Reuters) - The Hungarian forint eased on
Thursday on fading expectations for monetary tightening and a
pick-up in European Union financing inflows later this year.
    The forint underperformed European Union peers,
shedding 0.2 percent against the euro by 0833 GMT while
Budapest's main stock index fell by 0.7 percent.
    Trading at 323.5 it was still near the four-week highs
reached at 322.7 on Tuesday when the National Bank of Hungary
said it was prepared for future monetary tightening if inflation
trends make it necessary.
    "Im not sure that this is enough to prevent a retreat of the
forint beyond 327," one Budapest-based dealer said.
    Thursday's Hungarian economic data releases, showing a
current account surplus in the second quarter and 12.8 percent
annual surge in gross wages, were positive.
    On the negative side for Hungarian markets, a European
Commission source told Reuters that a dispute between Hungary
and Brussels over some European Union-funded projects might not
be settled this year. 
    That could leave Hungary still battling a multibillion-euro
gap in government accounts caused by the pre-financing of
EU-sponsored projects and keep primary debt issuance high, one
fixed-income trader said.
    A brighter point for Hungary was Bulgaria's pledge to
support Budapest in its stand-off with the EU over the potential
loss of its EU voting rights after criticism of its democratic
track record. 
    The reaction of the government bond market was muted early
on Thursday, with yields ticking up by about one basis point.
The 10-year benchmark paper traded at 3.63 percent, near its
highest level in three years.
    The Hungarian and the Polish central banks have been keeping
interest rates low despite a regionwide pick-up in inflation
since last year.
    The Czech central bank, which has a lower inflation target
at 2 percent, is expected to deliver its third successive
monthly increase to interest rates next week.
    Czech 10-year bond yields traded at six-week highs around
2.16 percent.
    Romania's leu was steady and government bonds
mixed, for now shrugging off political turmoil after former
allies of Liviu Dragnea called on him to resign as leader of the
ruling Social Democrats.
    Domestic politics continue to pose risks to Romanian assets,
but expectations for a retreat in inflation makes the country's
bonds and Thursday's auction of 2022-expiry bonds attractive,
Raiffeisen analysts said in a note.
            CEE       SNAPSHOT   AT                         
            MARKETS             1033 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5410   25.5200    -0.08%    +0.00%
 crown      >                                       
 Hungary    <EURHUF=  323.5000  322.9500    -0.17%    -3.89%
 forint     >                                       
 Polish     <EURPLN=    4.2905    4.2898    -0.02%    -2.66%
 zloty      >                                       
 Romanian   <EURRON=    4.6510    4.6515    +0.01%    +0.62%
 leu        >                                       
 Croatian   <EURHRK=    7.4260    7.4280    +0.03%    +0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.1700  118.2100    +0.03%    +0.28%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1096.81  1098.420    -0.15%    +1.73%
 Budapest             36148.32  36386.40    -0.65%    -8.20%
 Warsaw                2262.08   2259.10    +0.13%    -8.09%
 Bucharest             8314.05   8294.54    +0.24%    +7.23%
 Ljubljana  <.SBITOP    857.66    864.80    -0.83%    +6.36%
 Zagreb                1806.00   1806.23    -0.01%    -2.00%
 Belgrade   <.BELEX1    729.56    730.25    -0.09%    -3.98%
 Sofia                  626.80    627.60    -0.13%    -7.48%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5390    0.0160   +208bps     +2bps
   5-year   <CZ5YT=R    1.8250   -0.0020   +196bps     -1bps
   10-year  <CZ10YT=    2.2150    0.0590   +173bps     +6bps
   2-year   <PL2YT=R    1.5650   -0.0040   +210bps     +0bps
   5-year   <PL5YT=R    2.5370    0.0060   +267bps     +0bps
   10-year  <PL10YT=    3.2350    0.0190   +275bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.95      2.14      2.27      1.56
 Hungary                  0.50      0.73      0.99      0.20
 Poland                   1.77      1.80      1.83      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by David Goodman)
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