September 24, 2018 / 2:14 PM / 24 days ago

CEE MARKETS-Hungarian bond yields fall on euro bond issue prospect

    * Hungary may issue euro bond, local bond yields drop
    * Polish government bond yields track Bunds higher

 (Recasts with government bond markets, Hungary's euro bond
issue plan)
    By Sandor Peto
    BUDAPEST, Sept 24 (Reuters) - Hungarian long-term government
bond yields dropped on Monday as the state prepared for a rare
euro-denominated bond issue which could allow it to sell less
paper in the domestic market.
    The debt agency AKK mandated three banks for a not yet
specified foreign currency debt issue and to arrange an investor
conference call on Monday.
    A benchmark 7-year offering could follow, the IFR financial
news service said, based on market sources.
    Hungary rarely issues bonds in foreign currencies. Its
strategic goal has for several years been to cut reliance on
financing from abroad.
    The yield curve of bonds issued in forints flattened, with
3-year paper trading steady at 1.8 percent, while the 10-year
yield dropped 7 basis points from Friday's fixing to 3.53
percent.
    "The euro bond issue is partly causing the fall," one
Budapest-based fixed income trader said, adding a drop in
long-term yields was timely after a jump in the past months.    
   
    The 10-year yield is near its highest levels in the past
three years and more than 150 basis points above its early-year
record lows.
    Czech 10-year yields, bid at 2.2 percent near a
4-and-1/2-year high, also reflect increased concerns over a rise
in inflation across Central Europe in the past two years.
    The Czech central bank is expected to increase interest
rates further on Wednesday and once again by the end of 2018, a
Reuters poll of analysts showed on Monday.
    The Hungarian central bank (NBH) has been less worried by
inflation.
    A revamp of its toolkit announced last week prepares it to
start to tighten its ultra loose policy, but it is unlikely to
do that before well into next year, dealers said.
    The bank has stuck with its dovish bias.
    The 3-month BUBOR interbank rate dropped 2 basis
points after the announcement on Tuesday to 0.19 percent.
    The NBH lifted its offer at an auction of FX swaps to
a total of 462 million from 385 million euros.
    Elsewhere in Central Europe, Polish government bonds tracked
a jump in Bund yields after comments from European Central Bank
President Mario Draghi on a pick-up in wages and vigorous
inflation.
    The 10-year Polish yield was bid at 3.3 percent for the
first time in two weeks, approaching 3-month highs.  
    "As reflation trades are well entrenched in the rates
markets in Czechia and Hungary, investors may turn to Poland as
the next candidate," Bank of America Merrill Lynch analysts
wrote. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1522 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6200   25.6000    -0.08%    -0.30%
 crown      >                                       
 Hungary    <EURHUF=  323.5000  323.7500    +0.08%    -3.89%
 forint     >                                       
 Polish     <EURPLN=    4.3006    4.3020    +0.03%    -2.89%
 zloty      >                                       
 Romanian   <EURRON=    4.6570    4.6555    -0.03%    +0.49%
 leu        >                                       
 Croatian   <EURHRK=    7.4275    7.4265    -0.01%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.1000  118.2000    +0.08%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1096.34  1101.710    -0.49%    +1.69%
                                       0            
 Budapest             35693.38  35783.48    -0.25%    -9.36%
 Warsaw                2273.02   2257.47    +0.69%    -7.65%
 Bucharest             8385.02   8382.72    +0.03%    +8.14%
 Ljubljana  <.SBITOP    857.65    860.20    -0.30%    +6.36%
            >                                       
 Zagreb                1811.49   1803.76    +0.43%    -1.70%
 Belgrade   <.BELEX1    730.56    733.02    -0.34%    -3.85%
            5>                                      
 Sofia                  623.48    623.48    +0.00%    -7.97%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.5430    0.0830   +207bps     +6bps
            R>                                      
   5-year   <CZ5YT=R    1.8530    0.0050   +196bps     -5bps
            R>                                      
   10-year  <CZ10YT=    2.1980    0.0020   +169bps     -5bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.4070   -0.1690   +193bps    -20bps
            R>                                      
   5-year   <PL5YT=R    2.5770    0.0430   +268bps     -1bps
            R>                                      
   10-year  <PL10YT=    3.3030    0.0760   +279bps     +3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.95      2.14      2.26      1.56
            <PRIBOR=                                
            >                                       
 Hungary                  0.40      0.62      0.88      0.19
                                                    
 Poland                   1.78      1.81      1.86      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
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 (Reporting by Sandor Peto)
  
 
 
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