July 26, 2018 / 3:01 PM / 4 months ago

CEE MARKETS-Hungarian yields plunge; ECB comments drive closing of shorts

    * Zloty, forint firm as ECB comments do not get more hawkish
    * Hungarian yields plunge helped by forint strength, ECB
comments 
    * Leu, crown retreat slightly

 (Recasts with impacts of ECB comments)
    By Sandor Peto
    BUDAPEST, July 26 (Reuters) - Some Central European
currencies gained and Hungarian government bond yields plunged
on Thursday as comments from the European Central Bank
reinforced the closing out of earlier selling positions.
    Those positions were opened in recent months as a dollar
rally triggered a sell-off in emerging markets and expectations
for a rise in interest rates in the region.      
    But the dollar's gains lost steam in the past week, leading
to a rebound in regional currencies, including the forint, which
set a record low past 330 against the euro early this month.
    The dollar regained some strength against the euro on
Thursday as the ECB left interest rates on hold, as expected, 
and ECB President Mario Draghi left intact plans to unwind its
stimulus programme by the end of the year.
    The region's central banks look at the ECB for guidance as
higher interest rates in the euro zone would make their assets
less attractive. No change in the ECB's guidance takes pressure
off from some of the region's central banks to tighten policy.
    The currencies of Hungary and Poland, where interest rates
are at record lows and no rise is expected this year, firmed.
    The forint and the zloty rose 0.4
percent by 1354 GMT, with the forint trading at a safe distance
from its recent lows, at 324.25, also encouraging a closing of
short positions in Hungary's bond market, one trader said.
    The 10-year benchmark paper traded at 3.22 percent, down 15
basis points from Wednesday's midday fixing, and the 3-year
yield fell even more, to 1.55 percent.
    "Interbank BUBOR rates have also been dropping day
by day, like implied yields in FX swaps," the trader said.
    "Positions which bet on a yield rise and a forint weakening
lost sense, speculation has lost direction and we see stops,"
the trader added.
    Yields in the Czech Republic and Poland, where debt markets
were less hit in the past months than in Hungary, rose. 
    Regional stock markets firmed, led by 1.6 percent in
Warsaw's bluechip index, also reflecting better
sentiment after Wednesday's U.S.-EU talks eased fears of a trade
war.
    Warsaw's firming was mainly driven by a 4.9 percent jump in
the shares of insurer PZU.
    The Czech and Romanian currencies, buoyed recently by
expectations for further interest rate increases by their
central banks, gave up some ground against the euro.
    The leu shed a quarter of a percent to 4.636,
retreating from two-month highs set on Wednesday. The crown
 also eased a shade to 25.662, after hitting seven-week
highs early in the session.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1554 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6620   25.6520    -0.04%    -0.47%
 crown      >                                       
 Hungary    <EURHUF=  324.2500  325.4500    +0.37%    -4.11%
 forint     >                                       
 Polish     <EURPLN=    4.2860    4.3020    +0.37%    -2.56%
 zloty      >                                       
 Romanian   <EURRON=    4.6360    4.6245    -0.25%    +0.94%
 leu        >                                       
 Croatian   <EURHRK=    7.4030    7.4020    -0.01%    +0.37%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  117.9900    +0.08%    +0.51%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1092.41  1090.420    +0.18%    +1.32%
                                       0            
 Budapest             35420.14  34963.19    +1.31%   -10.05%
 Warsaw                2295.78   2260.70    +1.55%    -6.72%
 Bucharest             8014.04   7953.86    +0.76%    +3.36%
 Ljubljana  <.SBITOP    886.08    888.04    -0.22%    +9.88%
            >                                       
 Zagreb                1831.50   1821.56    +0.55%    -0.62%
 Belgrade   <.BELEX1    743.60    739.27    +0.59%    -2.13%
            5>                                      
 Sofia                  635.89    636.02    -0.02%    -6.13%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.2510    0.1730   +186bps    +18bps
            R>                                      
   5-year   <CZ5YT=R    1.6400    0.0990   +187bps    +10bps
            R>                                      
   10-year  <CZ10YT=    2.1550    0.0330   +176bps     +3bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6290    0.0000   +224bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.5000    0.0130   +273bps     +1bps
            R>                                      
   10-year  <PL10YT=    3.1410    0.0130   +274bps     +1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.44      1.65      1.77      1.20
            <PRIBOR=                                
            >                                       
 Hungary                  0.36      0.54      0.73      0.21
                                                    
 Poland                   1.74      1.77      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
  

    
 (Reporting by Sandor Peto; editing by Stephen Powell, Larry
King)
  
 
 
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