May 16, 2018 / 9:02 AM / 11 days ago

CEE MARKETS-Polish bonds rebound, central bank seen holding fire

    * Polish central bank seen reiterating loose policy stance
    * Polish 10-year bond yield tracks U.S., German peers lower
    * The jury is still out on timing of Polish rate
hike-analysts 

    By Sandor Peto and Marcin Goclowski
    BUDAPEST/WARSAW, May 16 (Reuters) - Polish government bond
yields gave up some ground on Wednesday ahead of a meeting in
Warsaw of the central bank at which it is expected to reaffirm
its loose policy stance despite a rally in U.S. and Central
European yields in recent weeks.
    Investors in Central Europe kept their eyes on the strong
dollar and U.S. 10-year Treasuries after the latter's yield
broke through key resistance levels, prompting a sell-off in
emerging market assets.
    The European Union's fast-growing and relatively stable
eastern economies are linked to the euro rather than to the
dollar, but the sell-off reached their markets nonetheless.
    Tracking a mild retreat in U.S. and German yields, Poland's
10-year yield dropped 2 basis points to 3.26 percent on
Wednesday, following a 30 basis point rise since April.
    Wednesday's retreat of the dollar in its euro cross
also eased selling pressure on the zloty.
    It gained 0.2 percent to 4.286 versus the euro by 0746 GMT,
drifting off a 7-month low reached at 4.302 on Tuesday, while
Czech crown firmed a quarter of a percent and the
forint 0.05 percent.
    All 14 analysts in a Reuters poll last week projected that
the Polish central bank would keep its 1.5 percent benchmark
rate on hold on Wednesday.
    Bond yields in the region and core markets rallied further
since the poll, but the rise is unlikely to deter the bank from
reiterating its forecast for no change in its record-low rates
this year and next, analysts said.
    Polish forward rate agreements price in a hike to
come already late in 2019.
    "We will hear today probably that the inflation is low, but
we think that there is a risk that it may accelerate next year,
so a rate hike in 2019 may happen," said Arkadiusz Urbanski,
analyst at bank Pekao SA.
    A hike may come even earlier, and expectations for
tightening could strengthen the zloty if fuel prices continue to
rise and a regionwide surge in wages starts to boost Polish
prices, Raiffeisen analyst Stephan Imre said in a note.
    Regional equities markets reflected some calm down after the
past weeks' global jitters, with the main indices near Tuesday's
closing levels.
    Budapest's main index firmed slightly as OTP Bank
shares, which have been on a rollercoaster around the
key 11,000 forint level for weeks, rose by 2 percent.
    Holding company Opus, a company part-owned by
Lorinc Meszaros, an associate of Prime Minister Viktor Orban,
gained 2.2 percent on reports that it would be added to MSCI's
small cap indices.
    The stocks of Polish insurer PZU rose 1 percent
after it reported a smaller-than-expected fall in its
first-quarter net profits.
      
            CEE       SNAPSHOT   AT                         
            MARKETS             0946 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5000   25.5600    +0.24%    +0.16%
 crown      >                                       
 Hungary    <EURHUF=  316.6000  316.7500    +0.05%    -1.80%
 forint     >                                       
 Polish     <EURPLN=    4.2860    4.2947    +0.20%    -2.56%
 zloty      >                                       
 Romanian   <EURRON=    4.6366    4.6360    -0.01%    +0.93%
 leu        >                                       
 Croatian   <EURHRK=    7.3795    7.3825    +0.04%    +0.69%
 kuna       >                                       
 Serbian    <EURRSD=  118.1300  118.1200    -0.01%    +0.31%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1106.60  1106.300    +0.03%    +2.64%
                                       0            
 Budapest             37707.76  37663.78    +0.12%    -4.24%
 Warsaw                2275.99   2276.45    -0.02%    -7.53%
 Bucharest             8677.63   8680.35    -0.03%   +11.92%
 Ljubljana  <.SBITOP    893.34    889.51    +0.43%   +10.78%
            >                                       
 Zagreb                1844.33   1846.43    -0.11%    +0.08%
 Belgrade   <.BELEX1    740.26    740.26    +0.00%    -2.57%
            5>                                      
 Sofia                  642.52    643.17    -0.10%    -5.16%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8590    0.0860   +141bps    +10bps
            R>                                      
   5-year   <CZ5YT=R    1.3500    0.0580   +136bps     +7bps
            R>                                      
   10-year  <CZ10YT=    1.8900    0.0000   +126bps     +2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6020    0.0020   +215bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.5230   -0.0300   +253bps     -2bps
            R>                                      
   10-year  <PL10YT=    3.2640   -0.0210   +264bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.00      1.14      1.27      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.15      0.23      0.18      0.06
                                                    
 Poland                   1.73      1.77      1.83      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Raissa Kasolowsky)
  
 
 
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