January 5, 2018 / 10:14 AM / a year ago

CEE MARKETS-Stocks move around highs, Czech bonds buck yield decline

    * Stocks dance around key levels after year-start rally
    * Prague shares touch another 6-1/2-year high
    * Czech yields rise in anticipation of rate hikes
    * Yield curve steepens in Bucharest, flattens in Budapest

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Jan 5 (Reuters) - Romanian stocks
touched a 2-1/2-month high on Friday, while other Central
European equities markets took a breather after a rally in the
first sessions of the year.
    After strong gains in 2017, regional stocks rose further in
2018, helped by a global rally, Central Europe's healthy
economic output and improved dividends prospects.
    Romania's stock index, a regional underperformer
last year, leads this year's rise, with 3.1 percent gain from
2017 by 0915 GMT.
    Other indices took a breather around psychological levels.
    Budapest pierced the 40,000-point line for the first
time since Nov. 24. Warsaw retreated behind 2,500
points from Thursday's two-month highs.
    Prague set a new 6-1/2-year high.
    Analysts saw room for further gains.
    "The economy is doing great," said Milan Vanicek, head of
research at J&T Banka.
    "And there are good dividend yields," he said.
    Vanicek said energy group CEZ, trading at its
highest since 2015, could rise further, adding that Moneta bank
 would be his bet for 2018.
    "Nice fundamentals, the economy is improving, and there
might be already a turnaround in the numbers, meaning not
declining but at least steady, and a very nice dividend," he
    Bank stocks rallied in the region in the past year, partly
due to expectations of rising interest rates.
    The crown is seen leading continuing regional currency gains
this year.
    The Czech Republic, where the central bank (CNB) has
increased interest rates twice since August, sold Treasury bills
on Thursday at a positive yield for the first time in two years.
    Czech government bond yields rose by 7-10 basis points on
Friday, with the 10-year paper bid at 1.711 percent. 
    Romania's central bank may become the first to follow the
CNB's rate tightening, but Romanian yields have declined this
year, with their curve steepening after an end-year government
spending spree.
    The increased market liquidity is unlikely to prompt action
at the Romanian central bank's meeting on Monday as the leu
 is off its end-2017 record lows, ING analysts said in
a note.
    "While we expect no change in policy stance, we look for
central bank to telegraph February hike," they said.
    In Budapest, bond yields traded near record lows and their
curve flattened after a plunge on Thursday amid robust demand at
the year's first auction.
    Long-term yields fell because on Jan. 18 Hungary's central
bank will launch long-tenor interest rate swap auctions to help
the curve flatten, traders said.
    The 10-year paper traded at a yield of 1.89 percent, down
six basis points from Thursday's fixing.
            CEE       SNAPSHOT   AT                         
            MARKETS             1015 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5260   25.5290    +0.01%    +0.06%
 crown      >                                       
 Hungary    <EURHUF=  308.5000  308.2600    -0.08%    +0.78%
 forint     >                                       
 Polish     <EURPLN=    4.1515    4.1507    -0.02%    +0.60%
 zloty      >                                       
 Romanian   <EURRON=    4.6350    4.6313    -0.08%    +0.96%
 leu        >                                       
 Croatian   <EURHRK=    7.4340    7.4345    +0.01%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  118.9500  119.0400    +0.08%    -0.38%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1105.29  1105.130    +0.01%    +2.52%
 Budapest             39865.37  39850.00    +0.04%    +1.24%
 Warsaw                2525.85   2533.17    -0.29%    +2.63%
 Bucharest             7991.91   7965.70    +0.33%    +3.07%
 Ljubljana  <.SBITOP    799.08    798.46    +0.08%    -0.91%
 Zagreb                1844.68   1844.20    +0.03%    +0.10%
 Belgrade   <.BELEX1    754.55    755.81    -0.17%    -0.69%
 Sofia                  691.29    691.01    +0.04%    +2.04%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6890    0.0980   +129bps     +9bps
   5-year   <CZ5YT=R    0.9430    0.0730   +115bps     +7bps
   10-year  <CZ10YT=    1.7110    0.0650   +128bps     +7bps
   2-year   <PL2YT=R    1.6030   -0.0170   +221bps     -2bps
   5-year   <PL5YT=R    2.5450   -0.0010   +275bps     +0bps
   10-year  <PL10YT=    3.2590    0.0080   +283bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.07      1.25      1.38      0.00
 Hungary                  0.03      0.11      0.16      0.03
 Poland                   1.75      1.79      1.87      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest, Editing by
William Maclean)
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