January 24, 2018 / 2:45 PM / in a year

CEE MARKETS-Pressure eases on Hungarian bonds, stocks retreat from record

    * Hungarian central bank plans changes to IRS
    * Hungarian bond yields retreat, outperforming Poland
    * Budapest, Warsaw stock indexes retreat from record highs

 (Recasts with expected change in Hungarian IRS tenders)
    By Sandor Peto
    BUDAPEST, Jan 24 (Reuters) - Hungarian government bonds
regained ground on Wednesday after the central bank (NBH)
informed banks' treasuries about planned changes to its new
interest rate swap (IRS) facility. 
    The first of the NBH's bi-weekly 5-year and 10-year IRS
auctions, held last Thursday, led to a sharp rebound in IRS and
government bond yields in the market because the offered amounts
and yield spreads disappointed some investors.
    Banking sources told Reuters the NBH planned to make the
tenders fixed-rate instead of variable-rate and link allocations
to the size of bidders' assets.
    Hungarian government bond yields returned to Tuesday's
fixing levels after an initial 2-3 basis point rise.
    The yield on 10-year bonds was flat at 2.1 percent at 1335
GMT, while the corresponding Polish yield rose 2 basis points to
3.35 percent.
    Traders said it remained to be seen whether the new tender
rules could trigger a fresh yield decline similar to the easing
seen before Thursday's tender. The central bank said it would
make a decision about changes to the IRS within days.
    The fixed rates for the tender will be published only later.
It is also uncertain what guidance the European Central Bank
will give to markets at its meeting on Thursday.
    Talk of an early rise in ECB rates could push yields higher
in the euro zone and Central Europe, traders said.
    "I do not think that the new IRS rules caused the retreat in
(Hungarian) yields," one Budapest-based fixed income trader
said. "Local funds, who were not involved in the earlier
IRS-driven positioning, found bonds attractive after the yield
rise," the trader added.
    Hungarian stocks led a regional retreat, mirroring their
Asian and Western European counterparts, after Budapest and
Warsaw indexes hit record highs.
    Hungary's OTP, a key driver of the earlier rally,
shed 2.3 percent, while Budapest's main stock index fell 1.1
percent. Warsaw's all-share index fell 0.5 percent.
    In currency markets, the zloty gained 0.2 percent
and the forint 0.3 percent against the euro,
benefiting from a dollar sell-off.
    The zloty hit a three-year high against the
greenback, just like the euro.
    The Czech crown was marginally weaker against the
euro, after it approached five-year highs on Tuesday.
    It received some support from comments by Czech central
banker Marek Mora who said positive data from local and European
economies warranted a 25 basis point interest rate hike at the
bank's meeting next week.
    Czech President Milos Zeman on Wednesday asked Prime
Minister Andrej Babis for a second time to try to form a new
government after his minority administration lost a confidence
vote in parliament last week.
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3750   25.3690    -0.02%    +0.66%
 crown      >                                       
 Hungary    <EURHUF=  309.1500  309.8500    +0.23%    +0.57%
 forint     >                                       
 Polish     <EURPLN=    4.1547    4.1683    +0.33%    +0.52%
 zloty      >                                       
 Romanian   <EURRON=    4.6670    4.6660    -0.02%    +0.27%
 leu        >                                       
 Croatian   <EURHRK=    7.4320    7.4305    -0.02%    -0.02%
 kuna       >                                       
 Serbian    <EURRSD=  118.6500  118.6800    +0.03%    -0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1136.00  1137.060    -0.09%    +5.36%
 Budapest             41051.91  41516.41    -1.12%    +4.25%
 Warsaw                2615.91   2630.37    -0.55%    +6.29%
 Ljubljana  <.SBITOP    830.45    835.90    -0.65%    +2.98%
 Zagreb                1863.57   1867.09    -0.19%    +1.12%
 Belgrade   <.BELEX1    776.42    775.16    +0.16%    +2.19%
 Sofia                  710.91    709.28    +0.23%    +4.94%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.4580   -0.1260   +105bps    -13bps
   5-year   <CZ5YT=R    1.0090    0.0220   +113bps     +0bps
   10-year  <CZ10YT=    1.7840   -0.0130   +120bps     -4bps
   2-year   <PL2YT=R    1.5570    0.0060   +215bps     +0bps
   5-year   <PL5YT=R    2.6850    0.0430   +281bps     +2bps
   10-year  <PL10YT=    3.3600    0.0410   +277bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.01      1.17      1.32      0.77
 Hungary                  0.09      0.12      0.20      0.02
 Poland                   1.75      1.78      1.88      1.72
 Note: FRA  are for ask prices                              

 (Additional reporting by Marcin Goettig in Warsaw; Editing by
Mark Potter, William Maclean)
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