October 2, 2018 / 2:21 PM / 8 months ago

CEE MARKETS-Hungary's short-term yield slips into negative again

    * Hungarian yield drops into the red for first time in 8
    * Forint, zloty leads easing, but stay near multi-week highs
    * Czech crown rebound from two-month low, leu resumes easing

 (Recasts with Treasury bill auction)
    By Sandor Peto
    BUDAPEST, Oct 2 (Reuters) - Hungary sold 3-month Treasury
bill yields at a negative yield on Tuesday as market players
expect that the government might cut debt issuance in the rest
of the year and the Hungarian central bank keeps interest rates
    Some central banks in the European Union's eastern wing,
also including Poland, have defied the trend led by the Federal
Reserve's interest rate hikes.
    The Hungarian central bank (NBH) revamped its toolkit last
month, saying that it was now prepared for tightening its policy
if inflation trends make it necessary.
    But it kept its dovish bias and held its main interest rate
at 0.9 percent, a record low and Central Europe's lowest level,
below 1.5 percent in Prague and Warsaw, and 2.5 percent in
    The government debt agency AKK sold 3-month Treasury bills
worth 25 billion forints at an average yield of -0.05 percent at
an auction on Tuesday, a record low last touched in February.
    It did not increase its offer despite the low yield and a
huge demand worth 124 billion forints.
    "Some market players were unable to reinvest their money
after a large expiry last week," one Budapest-based fixed income
trader said, adding that positioning for the end of the year may
have also increased demand.
    "I do not think that next week's auction will be as robust
as this one," the trader said.
    Erste analyst Orsolya Nyeste said the AKK may be curbing its
issuance in order to keep the year-end level of state debt
lower, after increased sales in the past months as delay in
European Union funding inflows opened a wide gap in the state
    A eurobond issue last week and other sales have created a
big buffer to finance that gap, AKK chief executive Gyorgy
Barcza told Reuters on Monday.
    After a rise in Czech interest rates in the past year,
Hungary is the only country in the region with negative
short-term interest rates.
    "Fundamentals (trade and current account surpluses) make the
forint undervalued, but low interest rates mean it is unlikely
that it can strengthen," Nyeste said.
    The forint eased 0.1 percent against the euro to
323.35 by 1318 GMT.
    But it was off early lows at 324.10, and its fall was caused
by international factors rather than the low short-term market
interest rates, market participants said.
    Some Central European currencies and stocks eased on Tuesday
as comments from a senior Italian official fuelled worries over
the country's euro zone membership, sending jitters through
European markets. 
    The zloty eased a quarter of a percent to 4.2933
versus the euro, while the leu shed 0.1 percent, to
trade at 4.6675, approaching the 3-month lows set last week.
    The Czech crown set a 2-month low early at 25.875 in the
session, before recovering to 25.8.   
            CEE       SNAPSHOT   AT                         
            MARKETS             1518 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8000   25.8000    +0.00%    -1.00%
 crown      >                                       
 Hungary    <EURHUF=  323.3500  322.9000    -0.14%    -3.85%
 forint     >                                       
 Polish     <EURPLN=    4.2933    4.2833    -0.23%    -2.72%
 zloty      >                                       
 Romanian   <EURRON=    4.6675    4.6625    -0.11%    +0.26%
 leu        >                                       
 Croatian   <EURHRK=    7.4295    7.4300    +0.01%    +0.01%
 kuna       >                                       
 Serbian    <EURRSD=  118.4500  118.4100    -0.03%    +0.04%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1101.71  1098.210    +0.32%    +2.18%
 Budapest             36826.36  36883.49    -0.15%    -6.48%
 Warsaw                2274.19   2284.01    -0.43%    -7.60%
 Bucharest             8507.05   8441.26    +0.78%    +9.72%
 Ljubljana  <.SBITOP    835.33    840.99    -0.67%    +3.59%
 Zagreb                1781.32   1781.36    -0.00%    -3.34%
 Belgrade   <.BELEX1    729.98    726.86    +0.43%    -3.92%
 Sofia                  626.04    625.74    +0.05%    -7.59%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.4520    0.0070   +202bps     +1bps
   5-year   <CZ5YT=R    1.8240   -0.0120   +199bps     +1bps
   10-year  <CZ10YT=    2.1620   -0.0090   +171bps     +1bps
   2-year   <PL2YT=R    1.5620   -0.0080   +213bps     -1bps
   5-year   <PL5YT=R    2.5550    0.0240   +272bps     +4bps
   10-year  <PL10YT=    3.2680    0.0580   +282bps     +8bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.96      2.10      2.22      1.73
 Hungary                  0.38      0.67      0.93      0.16
 Poland                   1.76      1.78      1.85      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Radu Marinas in Bucharest, Editing by
Matthew Mpoke Bigg and Ed Osmond)
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