CEE MARKETS-Currencies muted as rate hike expectations unable to lift them

BY Reuters | ECONOMIC | 10/13/21 05:34 AM EDT
       By Anita Komuves
    BUDAPEST, Oct 13 (Reuters) - Central European currencies
moved sideways on Wednesday, unable to get significant support
from rate hike expectations in the region as a stronger dollar
and rising U.S. treasury yields kept pressuring CEE markets.
    The Polish zloty slid 0.05% on the day and was
trading at 4.5770 per euro, giving up some of its gains from the
previous session.
    "The EUR/PLN exchange rate clearly moved away from the 4.60
level (on Tuesday)," PKO Bank wrote in a note. "It was largely
influenced by growing expectations for interest rate hikes."
    Poland's central bank surprised markets last week when it
delivered a 40 basis point interest rate hike, sooner than any
analysts expected.
    The Czech crown slid 0.12% to 25.4050 versus the
euro, unable to benefit from factors such as a hawkish central
bank and higher-than-expected inflation data, CSOB wrote in a
    "The main problem are global inflation pressures that have
sent American two-year yields to a year-and-a-half high and the
U.S. dollar along with it," CSOB said.
    Markets have priced in a steep 100 basis points in rate
hikes in the bank's final two meetings of 2021, with bets having
risen since inflation data this week showed price growth spike
much more than expected in September.
    However, Czech rate-setters on Wednesday offered contrasting
takes on the speed at which borrowing costs should
    The Hungarian forint edged up 0.05%, but was still
trading at the weaker side of the important level of 360 per
    Hungarian government bond yields on the long end of the
curve rose about 10 basis points since the central bank's
government bond purchases on Tuesday afternoon, two fixed-income
traders in Budapest said.
    "We are just tracking core markets," one FI trader said. "As
long as the forint remains weak and yields rise in the CEE
region, we will follow them."
     The yield on the 10-year government bond was 3.66% on
    Stocks in the CEE region were mixed, with Warsaw
weakening 0.54%, Prague easing 0.25% while Budapest
added 0.22%.

                   CEE       SNAPSHO   AT
                   MARKETS   T        1110 CET
                             Latest   Previous  Daily    Change
                             bid      close     change   in 2021
 EURCZK=  Czech    EURHUF=  Hungary  0
 EURPLN=  Polish   EURRON=  Romania  EURHRK=  Croatia  EURRSD=  Serbian  0
          Note:    calculated from              1800
          daily                                 CET

                             Latest   Previous  Daily    Change
                                      close     change   in 2021
 .PX      Prague             1371.32  1374.700   -0.25%   +33.51
                                             0                 %
 .BUX     Budapes            54771.1  54648.43   +0.22%   +30.07
          t                        2                           %
 .WIG20   Warsaw             2458.97   2472.33   -0.54%   +23.94
 .BETI    Buchare            12756.2  12738.30   +0.14%   +30.09
          st                       2                           %
 .SBITOP  Ljublja  %
 .CRBEX   Zagreb             2040.74   2044.01   -0.16%   +17.33
 .BELEX1  Belgrad  .SOFIX   Sofia               568.05    569.25   -0.21%   +26.93

                             Yield    Yield     Spread   Daily
                             (bid)    change    vs Bund  change
          Czech                                          spread
 CZ2YT=R           s
 CZ5YT=R           s
 CZ10YT=           s
 PL2YT=R           s
 PL5YT=R           s
 PL10YT=           s
                             3x6      6x9       9x12     3M
          Czech                 3.08      3.37     3.16     1.95
          Rep      Hungary               2.37      2.77     3.03     1.85

          Poland                1.50      1.94     2.33     0.67

          Note:    are for ask
          FRA      prices

 (Additional reporting by Jason Hovet in Prague and Alan
Charlish in Warsaw; Editing by Krishna Chandra Eluri)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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