June 20, 2018 / 8:28 AM / 3 months ago

CEE MARKETS-Hungary's bonds get some respite after central bank pledge, forint pares gains

    By Gergely Szakacs
    BUDAPEST, June 20 (Reuters) - Hungary's forint
pared some of its gains in early trade on Wednesday posted a day
after the central bank flagged an end to its ultra loose
monetary policy, which has helped stabilise bond yields after
recent big rises.
    At 0752 GMT, the forint traded 0.2 percent lower at 322.4
against the euro, giving back part of a rally in the wake of
pledge by the National Bank of Hungary to firmly focus on
inflation, while keeping main rates on hold.
    "For now, we expect that a change in communication from the
NBH will be sufficient to stabilise the Forint," analysts at
Goldman Sachs said in a note. The forint rallied from over
three-year lows following the central bank policy statement.
    The bank said loose monetary conditions could no longer
prevail until the end of its policy horizon, for the first time
flagging an end to an era of cheap money.
    "Looking further ahead, if the NBH decides it needs to
respond more decisively to Forint weakness, it has the scope to
push front-end rates materially higher by adjusting its FX swap
facility and its interest rate corridor," the analysts said.
    Still, given the prevailing easing bias in Hungary against a
backdrop of some other central banks, which have already started
tightening, Hungary's forint remains an underperformer in
central Europe with a 3.6 percent loss for the year.
    A bond trader in Budapest said for now the central bank's
pledge has helped put a lid on bond yields, which have surged in
the past weeks, especially on longer maturities, due to a rally
in the dollar and U.S. yields.
    "Their goal is postponing having to change interest rates as
long as possible and this objective has been achieved with
communication for the time being," the trader said.
    "The curve has become flatter, that is clear, this is
mission accomplished for the NBH, although the exact levels
where it has flattened is another matter," he said. "From their
own perspective, they have achieved what they wanted."
    Hungary's 10-year bonds are still trading at a yield of
around 3.45 percent, a far cry from levels of around 2 percent
at the start of the year.
    The trader added however that the forint was unlikely to
post major gains given the NBH's easing bias, while other
central banks in the region have already started raising
interest rates to combat inflation pressures.
    The next key test of investor demand will come on Thursday,
when Hungary offers 50 billion forints ($179.63 million) worth
of government bonds at an auction. The debt agency was forced to
cut last week's 12-month tender amid high market volatility.
    "The (communication) has helped calm down bond market
investors somewhat, as well as the fx market, but this is not a
done deal yet," another bond trader said, adding that selling
players dominated the market in the past two or three weeks.
    The Czech crown was flat ahead of a bond tender in
Prague later in the session, the last auction scheduled for the
second quarter, closing a period of heavy issuance.
           CEE      SNAPSHO   AT                      
           MARKETS  T        0952              
                             CET               
                    CURRENC                           
                    IES                        
                    Latest   Previou  Daily    Change
                             s                 
                    bid      close    change   in 2018
 Czech     <EURCZK  25.8100  25.8000   -0.04%   -1.04%
 crown     =>                                  
 Hungary   <EURHUF  322.400  321.750   -0.20%   -3.56%
 forint    =>             0        0           
 Polish    <EURPLN   4.3106   4.3045   -0.14%   -3.11%
 zloty     =>                                  
 Romanian  <EURRON   4.6675   4.6702   +0.06%   +0.26%
 leu       =>                                  
 Croatian  <EURHRK   7.3830   7.3850   +0.03%   +0.64%
 kuna      =>                                  
 Serbian   <EURRSD  118.000  118.160   +0.14%   +0.42%
 dinar     =>             0        0           
 Note:     calculated from            1800            
 daily                                CET      
 change                                        
                                                      
                    Latest   Previou  Daily    Change
                             s                 
                             close    change   in 2018
 Prague             1070.76  1068.21   +0.24%   -0.69%
                                  00           
 Budapest           35417.0  34972.3   +1.27%  -10.06%
                          7        5           
 Warsaw    <.WIG20  2161.29  2120.75   +1.91%  -12.19%
           >                                   
 Buchares           8089.20  8087.71   +0.02%   +4.33%
 t                                             
 Ljubljan  <.SBITO   890.96   890.98   -0.00%   +10.49
 a         P>                                        %
 Zagreb    <.CRBEX  1816.28  1820.61   -0.24%   -1.44%
           >                                   
 Belgrade  <.BELEX   735.13   733.78   +0.18%   -3.25%
           15>                                 
 Sofia     <.SOFIX   632.38   630.96   +0.23%   -6.65%
           >                                   
                    BONDS                             
                    Yield    Yield    Spread   Daily
                    (bid)    change   vs Bund  change
                                               in
 Czech                                         spread
 Republic                                      
   2-year  <CZ2YT=   1.0840   0.0010   +174bp    +0bps
           RR>                              s  
   5-year  <CZ5YT=   1.5380  -0.0240   +179bp    -3bps
           RR>                              s  
           <CZ10YT   2.1280  -0.0380   +174bp    -5bps
 10-year   =RR>                             s  
 Poland                                               
   2-year  <PL2YT=   1.6500  -0.0060   +230bp    -1bps
           RR>                              s  
   5-year  <PL5YT=   2.5450  -0.0110   +279bp    -2bps
           RR>                              s  
           <PL10YT   3.1710  -0.0220   +278bp    -4bps
 10-year   =RR>                             s  
           FORWARD  RATE     AGREEME                  
                             NT                
                    3x6      6x9      9x12     3M
                                               interba
                                               nk
 Czech     <CZKFRA     1.17     1.29     1.43     0.93
 Rep       ><PRIBO                             
           R=>                                 
 Hungary   <HUFFRA     0.42     0.62     0.82     0.18
           ><BUBOR                             
           =>                                  
 Poland    <PLNFRA     1.75     1.76     1.82     1.70
           ><WIBOR                             
           =>                                  
 Note:     are for ask                                
 FRA       prices                              
 quotes                                        
 ********************************************         
 ******************                            
 
($1 = 278.3500 forints)

    
 (Reporting by Gergely Szakacs; editing by David Evans)
  
 
 
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