October 18, 2018 / 2:11 PM / 10 months ago

CEE MARKETS-Hungarian bond yields rise again on US rate hike expectations

    * Hungarian yields rise again after slump, tracking
    * Hungarian bonds might remain jittery in next months
    * Romanian bonds draw strong demand at increased yield

 (Recasts with rise in Hungarian bond yields, Romanian bond
auction, stocks and currencies)
    By Sandor Peto
    BUDAPEST, Oct 18 (Reuters) - Hungarian government bond
yields reversed their earlier decline on Thursday, tracking a
renewed increase in U.S. Treasury yields after the Federal
Reserve's minutes signalled more increases in interest rates.
    Hungary's 10-year yield rose 3 basis points from
early trade to 3.76 percent. Poland's corresponding yield
 first rose 2 basis points, then returned to
Wednesday's close of 3.19 percent.
    The Hungarian yield is still down by about 15 basis points
from Tuesday's peak.
    Its retreat was caused by a return of buyers after a rally
of about 40 basis points earlier this month, when U.S. yields
were also rising.
    Hungarian long-term government debt is particularly
vulnerable because of inflation worries, coupled with the lowest
short-term interest rates in the eastern European Union, market
participants said.
    Upwards pressure on long-term Hungarian yields is likely to
return in the coming months. During periods of calm in developed
markets, investors could find the yields attractively high, said
Gergely Palffy, a Budapest-based analyst at Raiffeisen. 
    "The 4 percent level could be approached again later this
year, and that could trigger inflows from abroad," he said.
    In neighbouring Romania, a rise in inflation to above 5
percent by the middle of this year has also boosted government
bond yields. 
    As inflation is expected to retreat in coming months, 3-year
Romanian bonds offered at an auction on Thursday attracted
healthy demand.
    The finance ministry sold bonds worth 888.4 million lei
($219.52 million), compared with its 500 million lei original
plan, at an average yield of 4.5 percent, up from 4.19 percent
at a tender held seven weeks ago. 
    "(Romanian government bonds) come out good on our real yield
measures in the short to medium term," Raiffeisen analyst
Stephan Imre said in a note.
    "We nevertheless reiterate looming fiscal risks that should
finally increase the pressure on the central bank to recommence
rate hikes in 2019," he added.
    While Central Europe's high-yielding bonds remained
attractive, a rebound in equities in the region lost steam as 
their Asian and Western European peers were pushed lower by
expectations for a continuing rise in Fed interest rates.
    While the main stock indices if Budapest and Prague
 were steady at 1301 GMT, Warsaw shed 0.2 percent
and Bucharest eased half a percent.
    The region's main currencies eased 0.1-0.2 percent against
the euro, led by Poland's zloty which traded at
            CEE       SNAPSHOT   AT                         
            MARKETS             1501 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8610   25.8470    -0.05%    -1.23%
 crown      >                                       
 Hungary    <EURHUF=  322.5000  322.0800    -0.13%    -3.59%
 forint     >                                       
 Polish     <EURPLN=    4.2976    4.2890    -0.20%    -2.82%
 zloty      >                                       
 Romanian   <EURRON=    4.6682    4.6655    -0.06%    +0.25%
 leu        >                                       
 Croatian   <EURHRK=    7.4190    7.4160    -0.04%    +0.15%
 kuna       >                                       
 Serbian    <EURRSD=  118.5500  118.4000    -0.13%    -0.04%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1088.29  1087.860    +0.04%    +0.94%
 Budapest             37409.87  37399.11    +0.03%    -5.00%
 Warsaw                2194.61   2199.53    -0.22%   -10.83%
 Bucharest             8631.09   8670.30    -0.45%   +11.32%
 Ljubljana  <.SBITOP    814.11    813.42    +0.08%    +0.96%
 Zagreb                1775.36   1778.05    -0.15%    -3.66%
 Belgrade   <.BELEX1    743.92    735.33    +1.17%    -2.09%
 Sofia                  610.08    610.26    -0.03%    -9.94%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6030    0.0740   +223bps     +9bps
   5-year   <CZ5YT=R    1.8500   -0.0020   +199bps     +1bps
   10-year  <CZ10YT=    2.1650    0.0020   +171bps     +1bps
   2-year   <PL2YT=R    1.5720    0.0030   +220bps     +2bps
   5-year   <PL5YT=R    2.5030   -0.0090   +264bps     +0bps
   10-year  <PL10YT=    3.1920    0.0040   +274bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.24      2.37      1.76
 Hungary                  0.39      0.65      1.01      0.16
 Poland                   1.78      1.81      1.87      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; editing by Kirsten Donovan, Larry
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