November 22, 2018 / 3:14 PM / 19 days ago

CEE MARKETS-Hopes for upgrade, EU funds drive Hungarian yields lower

    * Hungary's bond yields hit multi-month lows, auction is
strong
    * Finance Minister says delayed EU funds can flow in soon
    * Hungarian wages, Polish retail data show strong growth
    * Polish shares give up some of Wednesday's strong gain

 (Adds Hungarian auction, new comments)
    By Sandor Peto
    BUDAPEST, Nov 22 (Reuters) - Hungarian government bond
yields fell to multi-month lows as the year's penultimate bond
auction drew strong demand on Thursday, amid optimism over
European Union fund inflows for the rest of 2018 and hopes for a
credit rating upgrade from Moody's.
    Two days after the National Bank of Hungary (NBH) kept the
lowest central bank rate in the eastern wing of the European
Union on hold at 0.9 percent, the country's bond yields were
fixed lower by 4 to 7 basis points along the curve.
    The 10-year yield, at 3.37 percent, was the lowest since
August, while the three-year yield fell to five-month lows and
was fixed at 1.5 percent.
    The latter bond was sold at an even lower average yield, at
1.47 percent, at the auction where three- and five-year bonds
were strongly oversubscribed.
    The government sold bonds worth 75.6 billion forints at two
auctions, well above its original offer totalling 48 billion
forints.
    Hungarian government bond yields have come down by about 50
basis points since early October, following a sharp rise when
European bonds tracked a jump in the 10-year U.S. Treasury
yield.
    In the subsequent retreat, Hungarian bonds narrowed their
yield spread over Poland and Germany, with foreign investors
boosting their Hungarian government bond holding
to a three-year high of more than 4 trillion forints.
     Hungarian papers have also been helped by expectations for
a pick-up in EU fund inflows, which could cut the government's
financing needs, and hopes that Moody's will upgrade Hungary's
credit rating in a review due on Friday, said Zoltan Torok,
analyst of Raiffeisen in Budapest.    
    Finance Minister Mihaly Varga told Reuters late on Wednesday
the government had pre-financed over 1.5 trillion forints ($5.32
billion) worth of spending, of which only some 600 billion had
been reimbursed so far and more could arrive by the end of the
year. 
    Torok said the NBH may start to tighten liquidity in
interbank markets as early as next month, even though it expects
annual inflation to retreat from October's 3.8 percent, the
highest level in almost six years.   
    Warsaw's blue-chip equities index reversed an early
decline and firmed almost 1 percent.
    Polish shares and the zloty rallied in the previous session
after the government changed tack on legal reforms that have
fuelled a crisis in relations with the European Commission, and
worries over a bank scandal eased. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1545 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9950   25.9940    -0.00%    -1.74%
 crown      >                                       
 Hungary    <EURHUF=  321.3000  321.4000    +0.03%    -3.23%
 forint     >                                       
 Polish     <EURPLN=    4.2970    4.2986    +0.04%    -2.81%
 zloty      >                                       
 Romanian   <EURRON=    4.6585    4.6643    +0.12%    +0.46%
 leu        >                                       
 Croatian   <EURHRK=    7.4300    7.4323    +0.03%    +0.00%
 kuna       >                                       
 Serbian    <EURRSD=  118.4800  118.3900    -0.08%    +0.02%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1063.37  1067.790    -0.41%    -1.37%
                                       0            
 Budapest             39314.22  39431.33    -0.30%    -0.16%
 Warsaw                2237.61   2219.62    +0.81%    -9.08%
 Bucharest             8525.11   8535.50    -0.12%    +9.95%
 Ljubljana  <.SBITOP    819.35    811.39    +0.98%    +1.61%
            >                                       
 Zagreb                1722.37   1733.14    -0.62%    -6.54%
 Belgrade   <.BELEX1    744.97    741.12    +0.52%    -1.95%
            5>                                      
 Sofia                  589.25    589.47    -0.04%   -13.02%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.6100    0.0730   +224bps     +7bps
            R>                                      
   5-year   <CZ5YT=R    1.8460    0.0110   +207bps     +1bps
            R>                                      
   10-year  <CZ10YT=    2.0800    0.0060   +171bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5980    0.0200   +223bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.4820    0.0320   +270bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2440    0.0340   +287bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.22      2.33      2.42      2.01
            <PRIBOR=                                
            >                                       
 Hungary                  0.33      0.55      0.85      0.13
                                                    
 Poland                   1.77      1.80      1.86      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Additional reporting by Marcin Goclowski in Warsaw; wditing by
Larry King)
  
 
 
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