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CEE MARKETS-Hungary's 10-year bonds erase two months of gains

* Hungarian bonds extend losses on disappointing IRS tender

* Hungary's 10-year yield back at Nov levels, off record lows

* Czech central bank chief sees Feb. 1 rate hike

* Leu approaches record lows on political, economic concerns

BUDAPEST, Jan 22 (Reuters) - Hungarian government bonds extended losses on Monday as investors continued to close positions after a disappointing interest rate swap (IRS) auction last week. The central bank's auction of five- and 10-year IRSs on Thursday was the first in a programme announced two months ago with the aim of pushing long-term interest rates down. But the bank (NBH) allocated a smaller-than-expected amount and the IRSs were not as cheap as banks had hoped for. The programme and the NBH's rhetoric on its wish to steepen the yield curve generated strong expectations for a big drop in yields and the bank could have met those expectations only by frontloading the scheme, analysts said. "Their tender offer was time-proportionate... They just did not think that the market would overreact the way it did," said Peter Virovacz, analyst of ING in Budapest. "They should have cooled the expectations." The yield on 10-year bonds rose 3 basis points from Friday's fixing to 2.2 percent. It has jumped 27 basis points from levels before the IRS tender and is back where it was when the IRS scheme and linked mortgage note programme was announced. Analysts saw little chance that the bi-weekly IRS tenders can lead long-term yields back to the record lows reached in the past weeks. Ten-year interest rate swaps were quoted at 1.95/1.99 percent, after dipping below 1.5 percent before the tender. After the dust settles, some decline in spot and IRS yields is possible, but a rise in interest rates on the horizon in Europe and in the United States will increasingly limit the NBH's capacity to push yields lower, analysts said. The Czech central bank is likely to continue to increase interest rates at its meeting on Feb. 1, its governor, Jiri Rusnok, was quoted as saying on Monday. That would be its third hike since August. It also plans to put a brake on mortgage lending, just the opposite of the NBH's plans which is less concerned over inflation. The crown firmed after Rusnok's comments, which came as no surprise, to 25.391 against the euro by 1034 GMT, approaching five-year highs set last week. The leu, meanwhile, eased 0.1 percent to 4.665, touching its weakest levels this year and approaching record highs set at the end of 2017. Romanian assets have been depressed by concerns that the economy is overheating and uncertainty over domestic politics. Tens of thousands of people protested in Bucharest on Saturday against corruption and attempts by the ruling Social Democrats to weaken judicial independence.

CEE SNAPSHOT AT MARKETS 1134 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.3910 25.4010 +0.04% +0.59% crown > Hungary <EURHUF= 309.3000 309.3700 +0.02% +0.52% forint > Polish <EURPLN= 4.1708 4.1745 +0.09% +0.13% zloty > Romanian <EURRON= 4.6655 4.6605 -0.11% +0.30% leu > Croatian <EURHRK= 7.4329 7.4345 +0.02% -0.03% kuna > Serbian <EURRSD= 118.5100 118.4500 -0.05% -0.01% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1125.57 1123.620 +0.17% +4.40%

0

Budapest 40440.69 40021.89 +1.05% +2.70% Warsaw 2607.74 2601.82 +0.23% +5.95% Bucharest 8396.01 8361.95 +0.41% +8.28% Ljubljana <.SBITOP 830.78 832.69 -0.23% +3.03% > Zagreb 1869.06 1873.74 -0.25% +1.42% Belgrade <.BELEX1 776.37 775.29 +0.14% +2.18%

5>

Sofia 708.61 711.69 -0.43% +4.60%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.5400 -0.0130 +114bps -2bps

R>

5-year <CZ5YT=R 1.0540 0.0260 +118bps +0bps

R>

10-year <CZ10YT= 1.7570 -0.0390 +117bps -6bps

RR Poland

2-year <PL2YT=R 1.5640 0.0010 +216bps -1bps

R>

5-year <PL5YT=R 2.6550 0.0120 +278bps -2bps

R>

10-year <PL10YT= 3.3350 0.0160 +275bps -1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 1.01 1.19 1.35 0.77

<PRIBOR=

>

Hungary 0.11 0.12 0.10 0.02 Poland 1.76 1.77 1.87 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Luiza Ilie in Bucharest; Editing by Susan Fenton)