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CEE MARKETS-Czech bond yields set multi-year highs on cbank comments

* Czech bond yields rise further, highest since 2014

* Czech rate setter Hampl comments underpin rate hike bets

* Hampl prefers 25 bps rate hike to a bigger one

* Czech, Polish bond auctions seen drawing sound demand

BUDAPEST/PRAGUE, Oct 25 (Reuters) - Czech bond yields rose to their highest levels since 2014 on Wednesday after expectations for a Czech central bank (CNB) rate hike next year were reinforced by comments from a rate setter. CNB Vice-Governor Mojmir Hampl said interest rates should go higher. The Czech crown reached four-year highs on Tuesday after rate setter Tomas Nidetzky said it had not firmed enough to prevent rate tightening, and the bank could consider tripling its main rate to 0.75 percent at its Nov. 2 meeting.

The crown steadied at 25.584 against the euro by 0849 GMT after Hampl said he preferred a 25 basis point standard rate hike rather than a bigger one. The mid-yields on Czech two- and 10-year government bonds continued to price in an expected rise in interest rates, trading at their highest levels since 2014 according to Reuters data. Hampl also warned that the crown remained overbought. Foreign investors are still sitting on a huge pile of crowns, after buying tens of billions of euros worth of it before the CNB removed a cap which had kept the currency weaker than 27 against the euro for years. Analysts said it will be a tough balancing act for the CNB to manage its rate hike cycle without discouraging expectations for more hikes, knocking off a key leg of the crown's strength. "Whereas we see more CZK (crown) appreciation potential, given that CZK still remains somewhat undervalued against the euro, the current speed of appreciation in our view increases the risks for setbacks," Raiffeisen analysts said in a note. "Such a setback could occur when rate hike speculation loses momentum, or if foreign investors see the scope for additional CZK appreciation diminishing," the note said. The Czech government can easily sell the papers offered at an auction despite the prospect of rate hikes, Komercni Banka trader Frantisek Kanka said in a note. "Bond nominal yields have increased significantly in recent weeks and bonds also cheapened relatively to swaps, so we think the relatively small sizes offered in the tender can be covered without any problems," he said. Raiffeisen also recommended investors bid at Wednesday's Polish government bond auction, saying that long-end Polish yields could fall by the year-end. "The favorable growth inflation mix and the surprisingly strong fiscal performance are not reflected appropriately in bond prices in our view," the note said, adding that the zloty also had a potential for firming. Polish bond yields changed little in the secondary market. Hungarian yields dropped 2-5 basis points since Tuesday's dovish comments from the Hungarian central bank.

CEE MARKETS SNAPSH AT 1049 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.584 25.595 +0.04 5.56% 0 5 % Hungary 310.48 310.30 -0.06% -0.53% forint 00 00 Polish zloty 4.2363 4.2457 +0.22 3.96%

%

Romanian leu 4.5980 4.5967 -0.03% -1.37% Croatian 7.5160 7.5137 -0.03% 0.52%

kuna

Serbian 119.47 119.55 +0.07 3.25% dinar 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 1059.1 1051.4 +0.73 +14.9 0 6 % 2% Budapest 39583. 39411. +0.44 +23.6 79 36 % 9% Warsaw 2459.9 2448.4 +0.47 +26.2 4 5 % 9% Bucharest 7870.9 7890.9 -0.25% +11.0 3 0 9% Ljubljana 802.88 803.99 -0.14% +11.8

9%

Zagreb 1883.2 1888.8 -0.29% -5.59% 9 1 Belgrade 727.18 727.18 +0.00 +1.37 % % Sofia 650.44 652.55 -0.32% +10.9

2% BONDS

Yield Yield Spread Daily (bid) change vs change Bund in Czech spread

Republic

2-year 0.391 0.03 +109b +3bps

ps

5-year 0.806 0.021 +106b +2bps

ps

10-year 1.728 0.047 +125b +4bps

ps Poland

2-year 1.685 -0.009 +239b -1bps

ps

5-year 2.68 0.014 +294b +1bps

ps

10-year 3.388 0.009 +291b +0bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.89 0.98 1.2 0

IBOR=>

Hungary <BU 0.09 0.095 0.115 0.03

BOR=>

Poland <WI 1.78 1.84 1.92 1.73

BOR=>

Note: FRA are for ask quotes prices ********************************************************* *****

(Additional reporting from Warsaw editorial; editing by Peter Graff)