May 18, 2018 / 9:53 AM / 7 days ago

CEE MARKETS-Poland leads bond yields retreat despite surge in wages

    * Bond yields mostly decline as U.S. yield rise stalls
    * Poland leads yield fall despite 7.8 pct rise in wages
    * Wage data does not change cbank policy-analysts 

    By Sandor Peto and Marcin Goclowski
    BUDAPEST/WARSAW, May 18 (Reuters) - Central European
government bonds mostly firmed on Friday as a rally in U.S.
yields stalled, overshadowing local factors such as figures
showing a jump in Polish wages in April.
    A rise in U.S. debt market yields and a firming of the
dollar caused selling and repricing of assets in emerging
markets, including Central Europe, earlier this month.
    The U.S. 10-year Treasury yield got stuck a tad above 3.1
percent on Friday, and the dollar around the 1.18 rate against
the euro.
    Currencies in the European Union's eastern wing closely
tracked the euro/dollar.
    The forint and the zloty, the region's
most liquid currencies, gave up most of their early gains versus
the euro by 0858 GMT, while the Czech crown traded 0.2
percent stronger at 25.573.
    Polish government bonds outperformed regional peers, with
the yield on the 10-year paper dropping 4 basis points to 32.8
percent.
    The zloty, trading at 4.2958, continued to test the 4.3
level, which it already pierced four days ago, setting a 7-month
low. It shrugged off strong April wage figures.
    Polish corporate wages rose 7.8 percent in annual terms,
compared with analysts' 7.1 percent forecast.
    The figures may signal that inflation pressure will prove
higher than the Polish central bank expects, analysts said.
    "(But they) do not change anything (in the market) as we are
now two days after the MPC (the central bank) sitting, which
maintained its dovish rhetoric," said Mateusz Sutowicz,
financial markets analyst at Bank Millennium.
    The bank's Governor Adam Glapinksi reaffirmed on Wednesday,
that he saw no reason to change record-low interest rates until
the end of 2019 or even longer.
    The rising trend in U.S. interest rates keeps the zloty
under pressure, but the weakened currency, rising fuel prices
and the strong labour market could still lead to more inflation
and a rate hike within 12 months, KBC analysts said in a note.
    "Therefore our medium-term outlook for the zloty remains
positive," they added.
    Hungary's central bank is also expected to confirm its loose
policy stance at its meeting on Tuesday.
    It will be closely watched for any comment on this month's
rise in both short- and long-term market interest rates and a
curve steepening, which widened the spread of 10-year bond
yields over Bunds by about 50 basis points, traders said.
    "All that is against the bank's objectives. If they do not
say anything, I can imagine a further rise in market rates," one
Budapest-based fixed income trader said.
    The 10-year paper traded at 3.05 percent, off Thursday's
peak at 3.1 percent, the highest level in almost one year.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1058 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5730   25.6160    +0.17%    -0.12%
 crown      >                                       
 Hungary    <EURHUF=  317.4000  317.4800    +0.03%    -2.04%
 forint     >                                       
 Polish     <EURPLN=    4.2958    4.2962    +0.01%    -2.78%
 zloty      >                                       
 Romanian   <EURRON=    4.6350    4.6369    +0.04%    +0.96%
 leu        >                                       
 Croatian   <EURHRK=    7.3830    7.3820    -0.01%    +0.64%
 kuna       >                                       
 Serbian    <EURRSD=  118.0500  118.1500    +0.08%    +0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1107.01  1107.390    -0.03%    +2.68%
                                       0            
 Budapest             37675.41  37538.04    +0.37%    -4.32%
 Warsaw                2244.35   2255.78    -0.51%    -8.81%
 Bucharest             8488.93   8511.49    -0.27%    +9.48%
 Ljubljana  <.SBITOP    898.59    898.81    -0.02%   +11.44%
            >                                       
 Zagreb                1856.23   1845.70    +0.57%    +0.72%
 Belgrade   <.BELEX1    745.14    744.24    +0.12%    -1.93%
            5>                                      
 Sofia                  648.70    649.98    -0.20%    -4.24%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8750    0.0840   +143bps     +9bps
            R>                                      
   5-year   <CZ5YT=R    1.3320    0.0380   +135bps     +5bps
            R>                                      
   10-year  <CZ10YT=    1.8700   -0.0070   +124bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6220   -0.0100   +218bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.5280   -0.0200   +254bps     -1bps
            R>                                      
   10-year  <PL10YT=    3.2800   -0.0360   +265bps     -3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.00      1.15      1.28      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.44      0.00
                                                    
 Poland                   1.74      1.77      1.83      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto, editing by Louise Heavens)
  
 
 
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