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CEE MARKETS-Hungarian yield curve flatten on new central bank tools

* Hungarian cbank announces new IRS tool to curb bond yields

* Forint hits seven-month low, Hungarian long-term yields drop

* Measures could boost mortgage lending ahead of elections

* Polish zloty hits four-month high vs euro

(Recasts with central bank decision and comments) BUDAPEST, Nov 21 (Reuters) - Hungary's forint hit a seven-month low and long-term bond yields fell after the central bank (NBH) announced new tools to keep monetary policy loose and encourage mortgage lending. The NBH, regarded as one of the world's most dovish central banks, kept interest rates on hold but said it would launch unconditional 5-year and 10-year interest rate swap (IRS) tools in January and also buy mortgage bonds in the market.

The aim is to push long-term market interest rates lower and encourage mortgage lending at low fixed rates. The 1 trillion to 1.5 trillion forint IRS program and roughly 500 billion forint note-buying scheme from the bank -- the governor of which is Gyorgy Matolcsy, a strong ally of Prime Minister Viktor Orban -- could help to boost lending around the time of elections in April or May. "This is a quite big program," one fixed-income trader said, adding that Hungary's medium and long-term government bond yields could fall further. The announcement of the new tools had been widely expected, but it pushed medium and long-term yields 2-4 basis points (bps) lower, with 10-year benchmark paper trading at 2.19 percent, down 7 bps from Monday's fixing. The fall comes on the heels of a 150 bps decline in the 10-year yield since March. That narrowed the spread over the 3-year yield which has declined by about 100 bps to 0.56 percent. The forint touched seven-month lows against the euro at 313.34 because the measures were interpreted as another round of monetary easing after repeated NBH liquidity injections in the interbank market this year. At 1539 GMT the forint traded at 313.70, 0.4 percent weaker, while its Central European peer the Polish zloty touched four-month highs, firming 0.3 percent to 4.221. Robust economic growth in the region, demonstrated by strong Polish wages, industrial output and retail sales data in recent days, has been helping its currencies. The Hungarian central bank's dovish policies, however, have weighed on the forint, which has shed 1.5 percent this year, while the zloty has gained more than 4 percent. "The forint's movement was small, given the news," one Budapest-based trader said. "The new measures may even lead to a strengthening later if foreign investors join the buying of Hungarian bonds." Hungary's 10-year bond yield could fall to 2 percent in the short term and the 3-month BUBOR interbank rate could turn negative from 0.03 percent, Erste analyst Orsolya Nyeste said in a note.

CEE MARKETS SNAPSH AT 1639 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.527 25.546 +0.07 5.80% 0 0 % Hungary 313.70 312.43 -0.40% -1.56% forint 00 00 Polish zloty 4.2210 4.2332 +0.29 4.33%

%

Romanian leu 4.6450 4.6488 +0.08 -2.37%

%

Croatian 7.5635 7.5663 +0.04 -0.11% kuna % Serbian 118.78 118.64 -0.12% 3.85% 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 1050.5 1053.5 -0.28% +13.9 5 5 9% Budapest 39525. 39359. +0.42 +23.5 53 28 % 1% Warsaw 2487.9 2468.0 +0.80 +27.7 0 9 % 2% Bucharest 7823.4 7813.8 +0.12 +10.4 2 5 % 2% Ljubljana 790.81 787.75 +0.39 +10.2 % 0% Zagreb 1855.8 1845.2 +0.57 -6.97% 8 7 % Belgrade 728.57 733.93 -0.73% +1.56

%

Sofia 669.97 669.14 +0.12 +14.2 % 5%

BONDS

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

Republic

2-year 0.392 0.019 +111b +3bps

ps

5-year 0.95 0.06 +130b +7bps

ps

10-year 1.813 0.07 +146b +8bps

ps Poland

2-year 1.597 -0.017 +231b -1bps

ps

5-year 2.637 -0.011 +299b -1bps

ps

10-year 3.429 -0.019 +308b -1bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 1.04 1.22 1.35 0

IBOR=>

Hungary <BU 0.08 0.1 0.13 0.03

BOR=>

Poland <WI 1.772 1.829 1.93 1.73

BOR=>

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

(Reporting by Sandor Peto; Editing by Andrew Heavens and David Goodman)