January 16, 2019 / 3:42 PM / a month ago

CEE MARKETS-Brexit boosts yields, central bank comments bolster forint

    * Hungarian bond yields sharply reverse plunge after Brexit
vote 
    * Forint is near strongest levels since Aug, off 1-month low
    * Hungarian central banker draws road map for tightening
    * Crown eases after mild PPI, defying hawkish central banker
    * 

 (Adds further forint gains, comments on crown, rebound of Czech
bank stocks)
    By Sandor Peto
    BUDAPEST, Jan 16 (Reuters) - Central European government
bond yields rose on Wednesday due to a shake-up of positions
after British Prime Minister Theresa May's plan for an orderly
exit from the European Union collapsed.
    A disorderly exit may hurt regional trade, with Poland most
exposed.
    Hungary's recently illiquid forint fell to a
one-month low of 324.25 against the euro after the British
parliament vote on Tuesday.
    But later it recovered to near its strongest levels since
August, trading at 321.48 at 1447 GMT, up half a percent on the
day.
    It jumped after Deputy Governor Marton Nagy revealed the
National Bank of Hungary's (NBH) so far clearest roadmap for
monetary tightening.
    He said the bank, which has interest rates at record lows,
could start to tighten policy once core inflation reaches 3
percent, the midpoint of the bank's 2-4 percent target.

    December core inflation measures were already close to that
level.
    Headline inflation fell to 2.7 percent, adding fuel to a
decline in Hungarian government bond yields.
    A sharp retreat in inflation in Central Europe in the past 
months, driven by a fall in crude prices, helped government bond
yields track a plunge in U.S. and German yields, led by Hungary.
    The country's 10-year yield fell further on Tuesday, dipping
below the corresponding Polish yield the first time since June
last year.
    But a selloff after the Brexit vote fully erased Tuesday's
10 basis point decline on Wednesday, when the bonds were fixed
at 2.79 percent.
    Poland's 10-year yield, which reached par with U.S.
Treasuries on Tuesday, rose 4 basis points to 2.77 percent,
compared with their U.S. peer's 2.739 percent.
    The zloty rebounded from an early fall to trade up
a quarter of a percent at 4.2828 versus the euro.
    The crown was down 0.1 percent at 25.561, after
Czech industrial producer price growth slowed to 2.4 percent,
below analysts' 3.2 percent forecast, even though central banker
Vojtech Benda said rate increases could continue.
    But the new data corroborated views in markets that the bank
would not hike rates anytime soon, said Viktor Zeisel, analyst
of Komercni Banka in a note.
    "We believe they are wrong this time," he said, adding that
core inflation and wage growth would remain sound, and likely
lead to a rate hike in February and two more in the rest of
2019.
    In stock markets, Prague's bluechip index rose by 1.4
percent, driven by a recovery of financial sector shares from
losses in the past days, including a 3.9 percent rise in
Komercni. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1547 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.5610   25.5420    -0.07%    +0.57%
 crown      >                                       
 Hungary    <EURHUF=  321.4800  323.2000    +0.54%    -0.12%
 forint     >                                       
 Polish     <EURPLN=    4.2828    4.2937    +0.25%    +0.16%
 zloty      >                                       
 Romanian   <EURRON=    4.6860    4.6807    -0.11%    -0.68%
 leu        >                                       
 Croatian   <EURHRK=    7.4270    7.4270    +0.00%    -0.23%
 kuna       >                                       
 Serbian    <EURRSD=  118.3700  118.3900    +0.02%    -0.06%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1017.54  1004.030    +1.35%    +3.14%
                                       0            
 Budapest             40625.70  40600.26    +0.06%    +3.80%
 Warsaw                2356.79   2344.56    +0.52%    +3.52%
 Bucharest             7064.97   7060.24    +0.07%    -4.32%
 Ljubljana  <.SBITOP    830.65    818.34    +1.50%    +3.28%
            >                                       
 Zagreb                1751.99   1747.60    +0.25%    +0.18%
 Belgrade   <.BELEX1    704.25    697.73    +0.93%    -7.54%
            5>                                      
 Sofia                  563.27    565.56    -0.40%    -5.25%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.8140    0.0500   +242bps     +4bps
            R>                                      
   5-year   <CZ5YT=R    1.7580    0.0580   +210bps     +3bps
            R>                                      
   10-year  <CZ10YT=    1.8240    0.0570   +159bps     +3bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.3960    0.0410   +200bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.2140    0.0460   +255bps     +2bps
            R>                                      
   10-year  <PL10YT=    2.7930    0.0340   +256bps     +1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.15      2.19      2.20      2.01
            <PRIBOR=                                
            >                                       
 Hungary                  0.30      0.52      0.77      0.13
                                                    
 Poland                   1.72      1.71      1.73      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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