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CEE MARKETS-Hungarian bond yields set record low ahead of auction
November 23, 2017 / 10:05 AM / 20 days ago

CEE MARKETS-Hungarian bond yields set record low ahead of auction

    * Hungarian bond prices extend gains ahead of auction
    * Long-term Hungarian bonds trade at record low yields
    * measures to curb yields weigh on forint-dealer
    * Leu is touch weaker ahead of no-confidence vote

    By Sandor Peto
    BUDAPEST, Nov 23 (Reuters) - Hungarian long-term government
bonds traded at record low yields on Thursday ahead of their
first auction since the central bank (NBH) announced measures to
push the yields lower.
    The decline bucked a rise in government debt yields in the
euro zone, which crept up ahead of the release of minutes from
the European Central Bank's October meeting.
    Elsewhere in Central Europe, Polish bond yields eased
slightly as the country's central bank also prepared to publish
the minutes of its last meeting later on Thursday.
    Hungarian bond yields dropped 1-3 basis points after a steep
decline in recent weeks amid expectations that the NBH would
take measures to flatten the yield curve and encourage mortgage
    The NBH, one of the most dovish central banks in the world,
announced on Tuesday that it would launch a big interest rate
swap programme from January to push long-term yield lower, and
also a mortgage note buying scheme.
    The government is due to sell 55 billion forints worth of
3-, 5- and 10-year bonds at its bi-weekly tender on Thursday.
    Five-year bonds traded at a yield of 1.07 percent ahead of
the primary sale, which is expected to draw robust demand,
mainly in the longer maturities. The 10-year benchmark bond
traded at 2.09 percent.
    "The yields could drop even further from the current record
lows at the auction," one Budapest-based fixed income trader
    "Later, yields could go even lower, but I do not think that
there is room for a decline of more than 10-15 basis points,"
the dealer added.
    "After all, the actual measures will come only next year and
we will need to see them."
    One currency dealer said the fall in yields may undermine
the forint's position in its crosses with regional peers, the
zloty and the crown.
    Regional economies grow robustly, and Poland's latest strong
wage and industrial output data have triggered some expectations
that the central bank there may start to raise interest rates
sooner than late next year.
    Diverging expectations with the forint pushed the zloty on
Wednesday to seven-month highs against the Hungarian currency
    But a dollar sell-off late on Wednesday strengthened both
currencies against the euro, and they retreated in tandem when
European markets reopened, shedding 0.1 percent.
    Elsewhere, the leu was a shade weaker near record
lows ahead of a no-confidence vote in Romania's parliament. The
motion is likely to fail, but political uncertainty remains
high, while a surge in wages has stoked up inflation.
               CEE MARKETS  SNAPSH   AT  1007 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                25.480  25.487   +0.03   5.99%
                                 0       5       %  
 Hungary                    313.01  312.75  -0.08%  -1.34%
 forint                         00      00          
 Polish zloty               4.2090  4.2051  -0.09%   4.63%
 Romanian leu               4.6530  4.6515  -0.03%  -2.54%
 Croatian                   7.5770  7.5775   +0.01  -0.29%
 kuna                                            %  
 Serbian                    119.35  119.19  -0.13%   3.35%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1046.4  1046.6  -0.01%   +13.5
                                 9       1              5%
 Budapest                   39933.  40131.  -0.49%   +24.7
                                59      37              8%
 Warsaw                     2493.1  2489.5   +0.14   +27.9
                                 0       0       %      9%
 Bucharest                  7797.8  7772.9   +0.32   +10.0
                                 5       6       %      6%
 Ljubljana                  784.22  786.11  -0.24%   +9.29
 Zagreb                     1863.3  1857.6   +0.31  -6.59%
                                 9       5       %  
 Belgrade                   731.01  731.78  -0.11%   +1.90
 Sofia                      668.29  669.38  -0.16%   +13.9
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.401   0.021   +109b   +1bps
   5-year                    1.014   0.131   +134b   +12bp
                                                ps       s
   10-year                   1.757  -0.025   +140b   -3bps
   2-year                    1.556   0.001   +225b   -1bps
   5-year                    2.592  -0.012   +292b   -2bps
   10-year                    3.38  -0.008   +302b   -2bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    1.03    1.21    1.34       0
 Hungary               <BU    0.03    0.06     0.1    0.03
 Poland                <WI    1.79    1.84  1.9025    1.73
 Note: FRA     are for ask                                
 quotes        prices                               

 (Reporting by Sandor Peto)

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