Sectors Shares

Dollar surge hits CEE currencies, Hungarian bond sale

* Hungary boosts bond offer, demand on long bonds quite weak
* Dollar's renewed rally weakens CEE currencies, equities
* Romanian gas price cut plan knocks down Bucharest stock

(Recasts with result of bond auctions, comments, graphic)
By Sandor Peto and Luiza Ilie
BUDAPEST/BUCHAREST, July 19 (Reuters) - Central European
currencies eased and Hungary's government bond auction drew
weaker-than-expected demand on Thursday as the dollar took
centre-stage, reaching a one-year high.
Dollar strength has prompted waves of selling in emerging
markets including Central Europe in the past months. Upbeat
comments on the U.S. economy from Federal Reserve chief Jerome
Powell earlier this week boosted the greenback again.
The forint and the zloty, the most
liquid currencies in the European Union's eastern peripheries,
weakened by half a percent against the euro at 1252 GMT.
Hungary sold government bonds worth 72.5 billion forints at
its auctions, 17.5 billion forints above its original offer.
Yields dropped from their levels in a sale two weeks ago,
but demand for the 5-year bond, a relatively new paper with low
liquidity, and the 10-year bond was weak.
The 10-year bond was sold at an average yield of 3.29
percent, and later it traded at 3.35 percent in the secondary
market, up from 5-week lows around 3.26 percent in the morning.
Hungary's ultraloose monetary policy and relatively low real
interest rates have made its assets particularly vulnerable to
selling waves driven by the dollar.
If the forint, which traded at 325.65 against the euro,
heads towards record lows reached beyond 330 early this month,
concerns over a pick-up in inflation may return, one
Budapest-based fixed income trader said.
The Hungarian central bank, however, is unlikely to change
its record low interest rates at its meeting on Tuesday or
change its rhetoric significantly, traders and analysts said.
"(Its statement) will be a copy paste," the trader said.
Government bonds and equities were mixed in the region.
Stocks indices mostly fell. Bucharest led the decline,
shedding 1.2 percent.
It was knocked down by OMV Petrom and Romgaz
, which fell 3.3 and 4.1 percent, respectively, after
Romania's government said it planned to lower and cap natural
gas prices by 2021.
State-owned companies like Romgaz have also been hit by a
requirement to pay higher dividends. Lower gas prices might cut
those state revenues, while they may reduce inflation.
The plan could negatively affect gas producers, Banca
Transilvania analysts said in a note.
"Moreover, the draft does not take into consideration any
differences between households and industrial consumers, which
generates an even worse context for local producers than the one
before last deregulation," they added.
The leu traded steady at 4.657 versus the euro, a
shade weaker from Wednesday.
The government sold more than planned 2024-expiry bonds at
an auction at an average yield of 4.8 percent, up two basis
points from a sale seven weeks ago.

Latest Previous Daily Change
bid close change in 2018
Czech <EURCZK= 25.9110 25.8550 -0.22% -1.42%
crown >
Hungary <EURHUF= 325.6500 324.0300 -0.50% -4.52%
forint >
Polish <EURPLN= 4.3284 4.3088 -0.45% -3.51%
zloty >
Romanian <EURRON= 4.6570 4.6545 -0.05% +0.49%
leu >
Croatian <EURHRK= 7.3945 7.3910 -0.05% +0.48%
kuna >
Serbian <EURRSD= 118.0400 117.9700 -0.06% +0.39%
dinar >
Note: calculated from 1800 CET

Latest Previous Daily Change
close change in 2018
Prague 1085.57 1087.360 -0.16% +0.69%
Budapest 34862.03 34720.31 +0.41% -11.47%
Warsaw 2141.46 2149.12 -0.36% -12.99%
Bucharest 7892.95 7990.15 -1.22% +1.80%
Ljubljana <.SBITOP 883.35 882.67 +0.08% +9.55%
Zagreb 1794.69 1795.49 -0.04% -2.61%
Belgrade <.BELEX1 735.96 742.52 -0.88% -3.14%
Sofia 624.71 628.47 -0.60% -7.79%
Yield Yield Spread Daily
(bid) change vs Bund change
Czech spread
2-year <CZ2YT=R 1.0960 0.0680 +174bps +7bps
5-year <CZ5YT=R 1.5390 0.0100 +182bps +1bps
10-year <CZ10YT= 2.1080 0.0050 +177bps +1bps
2-year <PL2YT=R 1.6250 0.0020 +227bps +1bps
5-year <PL5YT=R 2.4870 0.0000 +277bps +0bps
10-year <PL10YT= 3.1390 0.0200 +280bps +2bps
3x6 6x9 9x12 3M
Czech Rep 1.44 1.65 1.77 1.19
Hungary 0.43 0.63 0.85 0.25

Poland 1.73 1.76 1.80 1.70

Note: FRA are for ask prices

(Reporting by Sandor Peto, Editing by William Maclean and
Elaine Hardcastle)

First Published: 2018-07-19 10:44:56
Updated 2018-07-19 15:46:42

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