January 22, 2018 / 3:23 PM / a month ago

CEE MARKETS-Hungarian bonds erase months of gains, stocks hit record high

    * Hungarian bonds extend losses on disappointing IRS tender
    * Hungary's 10-year yield back at Nov levels, off record
lows
    * Hungarian stocks lead regional rise, hit record
high
    * Czech central bank chief sees Feb. 1 rate hike

 (Adds Budapest stocks, Romania's failed auction)
    By Sandor Peto
    BUDAPEST, Jan 22 (Reuters) - Hungarian stocks surged to
record highs on Monday and government bonds extended losses as
investors continued to close positions after Thursday's
disappointing interest rate swap tender.
    The central bank's tender of five- and 10-year swaps was the
first in a programme announced two months ago. The bank
allocated a smaller-than-expected amount and the swaps were not
as cheap as banks had hoped for.
    Its pledges to flatten the curve had led to expectations for
a big drop in yields. But the yield on 10-year bonds rose 3
basis points to 2.2 percent, 27 basis points above levels before
the tender - back where it was when the swaps scheme and linked
mortgage note programme was announced.
    Analysts saw little chance that the bi-weekly tenders can
lead long-term yields back to the record lows reached in the
past weeks.
    Ten-year interest rate swaps traded around 1.8 percent
, after dipping below 1.5 percent before the tender.
    Some retreat in spot and IRS yields is possible, but a rise
in rates on the horizon in Europe and in the United States will
make increasingly difficult to push yields lower, analysts said.
    Hungarian stocks, meanwhile, led a regional rise. Budapest's
main index surged almost two percent.
    "The index and OTP (Central Europe's biggest
independent bank) got to technical levels, and hit record
highs," said Zoltan Varga, analyst of Equilor brokerage. In such
periods, stops are closed and new buyers come."
    Elsewhere, the Czech central bank is likely to continue to
raise interest rates at its meeting on Feb. 1, its governor,
Jiri Rusnok, was quoted as saying on Monday.
    It also plans to put a brake on mortgage lending, the
opposite of the Hungarian central bank's plans, which are less
concerned with inflation.
    The Czech crown firmed after Rusnok's comments,
which came as no surprise, to 25.378 against the euro by 1439
GMT, approaching five-year highs.
    Romania's leu eased 0.2 percent to 4.668, touching
its weakest levels this year and approaching record highs.
    The government rejected all bids at a tender of 6-year
bonds, after a surge in Romanian yields in the market.
    Romanian assets have been depressed by concern that the
economy is overheating and by uncertainty over domestic
politics. Tens of thousands of people protested in Bucharest on
Saturday against corruption and what the protesters called
attempts by government to weaken judicial independence
.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1539 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3780   25.4010    +0.09%    +0.65%
 crown      >                                       
 Hungary    <EURHUF=  309.5000  309.3700    -0.04%    +0.46%
 forint     >                                       
 Polish     <EURPLN=    4.1718    4.1745    +0.06%    +0.11%
 zloty      >                                       
 Romanian   <EURRON=    4.6680    4.6605    -0.16%    +0.25%
 leu        >                                       
 Croatian   <EURHRK=    7.4345    7.4345    +0.00%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.6800  118.4500    -0.19%    -0.15%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1130.67  1123.620    +0.63%    +4.87%
                                       0            
 Budapest             40771.49  40021.89    +1.87%    +3.54%
 Warsaw                2614.70   2601.82    +0.50%    +6.24%
 Bucharest             8417.15   8361.95    +0.66%    +8.56%
 Ljubljana  <.SBITOP    836.12    832.69    +0.41%    +3.69%
            >                                       
 Zagreb                1866.61   1873.74    -0.38%    +1.29%
 Belgrade   <.BELEX1    776.31    775.29    +0.13%    +2.17%
            5>                                      
 Sofia                  707.85    711.69    -0.54%    +4.49%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.5400   -0.0130   +114bps     -1bps
            R>                                      
   5-year   <CZ5YT=R    1.0270    0.0000   +117bps     -1bps
            R>                                      
   10-year  <CZ10YT=    1.7730   -0.0220   +120bps     -3bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5570   -0.0060   +216bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.6600    0.0170   +280bps     +0bps
            R>                                      
   10-year  <PL10YT=    3.3310    0.0120   +275bps     +0bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.04      1.19      1.38      0.77
            <PRIBOR=                                
            >                                       
 Hungary                  0.09      0.14      0.23      0.02
                                                    
 Poland                   1.76      1.79      1.87      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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