Hungarian bond yields fall, forint tests 4-week low on CPI decline

* Hungarian Dec CPI drops below forecasts, central bank
* Hungarian bond yields hit 8-month low, Polish yields at
multi-year lows
* Core inflation rise to come under increasing scrutiny
* Bucharest stocks hit new 2-year low on tax worries

(Adds forint, leu weakening, new analyst comment)
By Sandor Peto
BUDAPEST, Jan 15 (Reuters) - Hungarian government bond
yields fell to their lowest levels in about eight months on
Tuesday and the forint weakened after local and Slovak data
confirmed that inflation fell more than expected in December
across central Europe.
The 10-year Bund yield dropped 3 basis points to
0.2 percent, after weak German economic output data.

Its Polish peer shed 5 basis points to 2.677
percent, after touching its lowest level since August 2016 at
2.665 percent.
Hungary's corresponding yield was fixed at 2.68 percent
, down 10 basis points, after December data showed a
fall in annual inflation from 3.1 percent in November to 2.7
percent, below analysts' 3 percent forecast in a poll.
Neighbouring Slovakia also posted inflation figures below
expectations on Tuesday, just as Czech and Polish data released
earlier had done.
Poland's headline inflation, at 1.1 percent, is well below
the middle of the central bank's 1.5-3.5 percent goal. Hungary's
figure also came in below the central bank's 3 percent long-term
A decline in crude oil prices has helped inflation retreat
in the past months, and coupled with weakening expectations for
Federal Reserve rate hikes, has led to a slump in government
bond yields in central Europe.
Hungary's 10-year yield has declined by 124 basis points
since a peak in early October.
Years of wage rises in the region, however, have started to
feed into an increase in core inflation, including the price of
services and processed food.
Hungary's core inflation could rise above 3 percent this
month and could nudge the central bank (NBH) towards tighter
policy, ING analyst Peter Virovacz said in a note.
Analysts expect the bank to let forint liquidity tighten
slowly and allow short-term interbank interest rates to
rise gradually.
"(But) we still do not expect a hike in the (0.9 percent
NBH) base rate this year or interbank interest rates to reach
the base rate before 2020," said Orsolya Nyeste, Budapest-based
analyst of Erste, in a note.
The forint underperformed Central European peers,
but stopped short of entering 4-week highs beyond 323 versus the
euro. At 1357 GMT it traded at 322.95, weaker by 0.4 percent.
The leu touched its weakest level in seven months
for the second time within a few days at 4.69 against the euro,
to recover to 4.682 later.
Bucharests's stocks index also recouped most of its
early loss, after falling by about 2 percent to a new 2-year low
due to worries over 2019 tax increases on the bank and energy

Latest Previous Daily Change
bid close change in 2019
Czech <EURCZK= 25.5700 25.5600 -0.04% +0.54%
crown >
Hungary <EURHUF= 322.9500 321.7100 -0.38% -0.58%
forint >
Polish <EURPLN= 4.2910 4.2915 +0.01% -0.03%
zloty >
Romanian <EURRON= 4.6820 4.6812 -0.02% -0.60%
leu >
Croatian <EURHRK= 7.4300 7.4348 +0.06% -0.27%
kuna >
Serbian <EURRSD= 118.4000 118.4000 +0.00% -0.08%
dinar >
Note: calculated from 1800 CET

Latest Previous Daily Change
close change in 2019
Prague 1002.49 1001.150 +0.13% +1.61%
Budapest 40459.91 40667.65 -0.51% +3.38%
Warsaw 2331.93 2327.66 +0.18% +2.43%
Bucharest 6876.39 6934.35 -0.84% -6.87%
Ljubljana <.SBITOP 818.34 811.10 +0.89% +1.75%
Zagreb 1742.24 1734.34 +0.46% -0.38%
Belgrade <.BELEX1 697.73 693.40 +0.62% -8.40%
Sofia 565.94 568.05 -0.37% -4.80%
Yield Yield Spread Daily
(bid) change vs Bund change
Czech spread
2-year <CZ2YT=R 1.8900 0.1950 +250bps +21bps
5-year <CZ5YT=R 1.6810 -0.0520 +204bps -3bps
10-year <CZ10YT= 1.7860 -0.0680 +158bps -4bps
2-year <PL2YT=R 1.3310 -0.0020 +194bps +1bps
5-year <PL5YT=R 2.1100 -0.0510 +247bps -3bps
10-year <PL10YT= 2.6970 -0.0380 +249bps -1bps
3x6 6x9 9x12 3M
Czech Rep 2.15 2.19 2.20 2.01
Hungary 0.26 0.41 0.61 0.13

Poland 1.73 1.71 1.68 1.72

Note: FRA are for ask prices

(Additional reporting by Radu Marinas in Bucharest; Editing by
David Evans/Keith Weir)

First Published: 2019-01-15 13:01:31
Updated 2019-01-15 16:31:59

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