November 8, 2018 / 2:31 PM / a year ago

CEE MARKETS-Bond auctions draw strong demand despite Hungary's CPI rise

    * Hungary's CPI unexpectedly rises in Oct, lifting yields
    * Budapest, Bucharest high-yielding bond sales draw strong
    * Serbian central meets, holds fire

 (Recasts with Hungary's and Romania's bond auctions, rise in
Romanian central bank's inflation forecast, new comments)
    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, Nov 8 (Reuters) - Hungarian bond yields
rose after inflation unexpectedly picked up in October to its
highest level in almost six years, fuelling demand at the
government's bi-weekly auctions on Thursday. 
    A bond auction was also well-bid in Romania, where bonds
offer an even higher yield premium over euro zone peers, then
    Yields even dropped in Bucharest's secondary market, even
though the central bank (NBR) slightly increased its inflation
forecasts for 2019 to 2.9 percent.
    That is still within its 1.5-3.5 percent target range and
well below this year's levels around 5 percent. The revision had
been priced in, ING analyst Ciprian Dascalu said.
    Interbank markets are awash in money both in Budapest, where
the central bank (NBH) keeps its base rate at record lows of 0.9
percent, and in Bucharest where the bank injected funds into
markets via its repo auctions in the past weeks. 
    Romania's 2-year bond yield was bid at 3.78
percent in the secondary market, down 4 basis points.
    The 10-year Romanian yield was bid at 4.75
percent at 1348 GMT, down 21 basis points, but still 430 basis
points above the corresponding Bunds.
    Hungary's 10-year yield rose 9 basis points to
3.64 percent, after statistics showed a surprise rise in annual
inflation to 3.8 percent in October, near the top of the NBH's
2-4 percent target range, from September's 3.6 percent. 
    The country's 2020-expiry bond yields rose by only 1-2 basis
points to around 1 percent. But one of the steepest yield curves
in the world can flatten next year if the NBH starts to reverse
its monetary stimulus, one Budapest-based trader said.
    "Yields may be attractive, given the risks attached to euro
zone bonds, including Italy's budget and (German Chancellor
Angela) Merkel's future," the trader said.
    A rise in volatile energy prices have helped inflation pick
up across the region even though its robust economic growth
shows the signs of slowing.
    The NBH said its underlying inflation measures also showed a
pick-up in October, but market participants said it was unlikely
to start to tighten policy before next year.
    The forint briefly touched a 3-month high of 320.9 against
the euro just after the inflation figures.
    Elsewhere in the region, the dinar firmed a shade
as the Serbian central bank met. It is expected to keep its
benchmark rate on hold at 3 percent.
    Regional stock indices were mixed, driven by earnings
reports. Weaker than expected results drove Hungarian
pharmaceuticals Richter down by 2.3 percent, while oil
group MOL gained 1.7 percent and Czech lender Komercni
Banka firmed by 2 percent.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1501 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9000   25.8810    -0.07%    -1.38%
 crown      >                                       
 Hungary    <EURHUF=  321.1900  321.4000    +0.07%    -3.20%
 forint     >                                       
 Polish     <EURPLN=    4.2865    4.2885    +0.05%    -2.57%
 zloty      >                                       
 Romanian   <EURRON=    4.6599    4.6605    +0.01%    +0.42%
 leu        >                                       
 Croatian   <EURHRK=    7.4310    7.4343    +0.04%    -0.01%
 kuna       >                                       
 Serbian    <EURRSD=  118.2600  118.3600    +0.08%    +0.20%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1082.20  1075.790    +0.60%    +0.37%
 Budapest             38309.55  38198.00    +0.29%    -2.71%
 Warsaw                2268.44   2276.65    -0.36%    -7.83%
 Bucharest             8680.71   8671.98    +0.10%   +11.96%
 Ljubljana  <.SBITOP    812.93    807.33    +0.69%    +0.81%
 Zagreb                1786.31   1783.95    +0.13%    -3.07%
 Belgrade   <.BELEX1    749.36    747.15    +0.30%    -1.37%
 Sofia                  595.19    592.62    +0.43%   -12.14%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5300    0.0550   +215bps     +5bps
   5-year   <CZ5YT=R    1.8270   -0.0020   +197bps     -1bps
   10-year  <CZ10YT=    2.1220    0.0040   +167bps     +0bps
   2-year   <PL2YT=R    1.5830    0.0360   +220bps     +3bps
   5-year   <PL5YT=R    2.4910    0.0260   +263bps     +2bps
   10-year  <PL10YT=    3.2350    0.0090   +278bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.11      2.20      2.46      1.97
 Hungary                  0.39      0.67      1.04      0.16
 Poland                   1.77      1.83      1.92      1.72
 Note: FRA  are for ask prices                              
0 : 0
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