CEE MARKETS-Hungarian CPI boosts bonds, Czech yields fall further

09/08/2016 5:32

* Hungary's Aug CPI down 0.1 pct, lifts bond prices further * Zloty trades at two-week high, forint shy of six-month high * Czech one-year forwards indicate speculation for crown surge By Sandor Peto and Jason Hovet BUDAPEST/PRAGUE, Sept 8 (Reuters) - Hungarian government bond yields fell near record lows on Thursday, outperforming Central European peers, as a drop in inflation boosted expectations for a liquidity boost from the central bank. The bank will meet on Sept. 20 and is expected to decide on limiting the funds kept in its 3-month deposits which now hold 1.69 trillion forints ($6.17 billion). Part of the funds to be squeezed out could flow into bonds. Figures published on Thursday showed 0.1 percent drop in Hungarian consumer prices in August, in line with analysts' median forecast. But some market participants had expected a rise. The yield on 3-year government bonds fell 6 basis points from Wednesday's fixing to 1.3 percent, near record lows. "Market sentiment has been positive in the past weeks... some market participants draw a too far-reaching conclusion from the figures," one Budapest-based fixed income trader said. "The picture could change again by the year-end as inflation may reach 2 percent and the Federal Reserve may also hike its interest rates," the trader said. Inflation has been anemic for years in Central Europe, but central banks have signaled that they expected a rebound towards target levels even without further interest rate cuts. Serbia's central bank is expected to keep the region's highest benchmark rate unchanged at 4 percent on Thursday, after a slight rise in inflation to 1.2 percent in July. Two Czech central bankers reaffirmed their commitment on Wednesday to exit the bank's cap on the crown exchange rate at levels near 27 against the euro around the middle of next year. "Interestingly, both have expressed that one-off cap exit would be a preferred scenario, probably the first indication in the whole time how the end of FX regime might look," Komercni bank said in a note. Wednesday's Czech currency reserve figures also indicated that the bank had had to step up euro buying to defend the cap. Czech one-year outright forwards have dropped since August from an implied crown rate of around 27 to around 26.80 on Thursday, indicating expectations for a crown surge. Czech government bonds extended Wednesday's gains, with the 5-year yield dropping 6 basis points to -0.162 percent. The past few days' rally in Poland's bond markets lost steam, but the zloty traded at a two-week high versus the euro. CEE SNAP AT 1103 MARKETS SHOT CET CURRENCIES Late Prev Dail Chan st ious y ge bid clos chan in e ge 2016 Czech <EURCZK 27.0 27.0 +0. -0.0 crown => 210 325 04% 9% Hungary <EURHUF 308. 308. -0.0 1.99 forint => 4900 4300 2% % Polish <EURPLN 4.31 4.32 +0. -1.2 zloty => 30 38 25% 8% Romanian <EURRON 4.45 4.44 -0.0 1.55 leu => 00 89 2% % Croatian <EURHRK 7.48 7.48 +0. 2.06 kuna => 50 75 03% % Serbian <EURRSD 123. 123. +0. -1.4 dinar => 2100 3300 10% 1% Note: calcula prev clos 1800 daily ted ious e at CET change from STOC KS Late Prev Dail Chan st ious y ge clos chan in e ge 2016 Prague 887. 881. +0. -7.2 04 41 64% 5% Budapest 2868 2864 +0. +19 6.38 2.84 15% .92% Warsaw <.WIG20 1805 1810 -0.2 -2.8 > .64 .02 4% 8% Buchares 7081 7086 -0.0 +1. t .25 .04 7% 10% Ljubljan <.SBITO 732. 732. -0.0 +5. a P> 60 85 3% 24% Zagreb <.CRBEX 1837 1836 +0. +8. > .13 .51 03% 73% Belgrade <.BELEX 636. 637. -0.1 -1.1 15> 46 40 5% 9% Sofia <.SOFIX 472. 469. +0. +2. > 05 25 60% 42% BOND S Yiel Yiel Spre Dail d d ad y (bid chan vs chan ) ge Bund ge in Czech spre Republic ad 2-year <CZ2YT= -0.3 -0.0 +03 -2bp RR> 69 2 0bps s 5-year <CZ5YT= -0.1 -0.0 +04 -6bp RR> 62 63 0bps s <CZ10YT 0.24 -0.0 +03 +0b 10-year =RR> 4 01 6bps ps Poland 2-year <PL2YT= 1.68 -0.0 +23 -1bp RR> 6 14 6bps s 5-year <PL5YT= 2.2 0.01 +27 +2b RR> 6 7bps ps <PL10YT 2.76 -0.0 +28 -1bp 10-year =RR> 3 06 8bps s FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M inte rban k Czech <CZKFRA 0.28 0.26 0.22 0 Rep ><PRIBO R=> Hungary <HUFFRA 0.72 0.67 0.68 0.88 ><BUBOR 5 5 => Poland <PLNFRA 1.70 1.67 1.67 1.71 ><WIBOR 5 5 => Note: are for FRA ask quotes prices ***************************************** ********************* ) (Additional reporting by Luiza Ilie in Bucharest)

09/08/2016 5:32