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CEE MARKETS-Brexit boosts yields, central bank comments bolster forint

Sandor Peto

* Hungarian bond yields sharply reverse plunge after Brexit vote

* Forint is near strongest levels since Aug, off 1-month low

* Hungarian central banker draws road map for tightening

* Crown eases after mild PPI, defying hawkish central banker

*

(Adds further forint gains, comments on crown, rebound of Czech bank stocks) BUDAPEST, Jan 16 (Reuters) - Central European government bond yields rose on Wednesday due to a shake-up of positions after British Prime Minister Theresa May's plan for an orderly exit from the European Union collapsed. A disorderly exit may hurt regional trade, with Poland most exposed. Hungary's recently illiquid forint fell to a one-month low of 324.25 against the euro after the British parliament vote on Tuesday. But later it recovered to near its strongest levels since August, trading at 321.48 at 1447 GMT, up half a percent on the day. It jumped after Deputy Governor Marton Nagy revealed the National Bank of Hungary's (NBH) so far clearest roadmap for monetary tightening. He said the bank, which has interest rates at record lows, could start to tighten policy once core inflation reaches 3 percent, the midpoint of the bank's 2-4 percent target.

December core inflation measures were already close to that level. Headline inflation fell to 2.7 percent, adding fuel to a decline in Hungarian government bond yields. A sharp retreat in inflation in Central Europe in the past months, driven by a fall in crude prices, helped government bond yields track a plunge in U.S. and German yields, led by Hungary. The country's 10-year yield fell further on Tuesday, dipping below the corresponding Polish yield the first time since June last year. But a selloff after the Brexit vote fully erased Tuesday's 10 basis point decline on Wednesday, when the bonds were fixed at 2.79 percent. Poland's 10-year yield, which reached par with U.S. Treasuries on Tuesday, rose 4 basis points to 2.77 percent, compared with their U.S. peer's 2.739 percent. The zloty rebounded from an early fall to trade up a quarter of a percent at 4.2828 versus the euro. The crown was down 0.1 percent at 25.561, after Czech industrial producer price growth slowed to 2.4 percent, below analysts' 3.2 percent forecast, even though central banker Vojtech Benda said rate increases could continue. But the new data corroborated views in markets that the bank would not hike rates anytime soon, said Viktor Zeisel, analyst of Komercni Banka in a note. "We believe they are wrong this time," he said, adding that core inflation and wage growth would remain sound, and likely lead to a rate hike in February and two more in the rest of 2019. In stock markets, Prague's bluechip index rose by 1.4 percent, driven by a recovery of financial sector shares from losses in the past days, including a 3.9 percent rise in Komercni.

CEE SNAPSHOT ATMARKETS 1547 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK 25.5610 25.5420 -0.07% +0.57%crown >Hungary <EURHUF= 321.4800 323.2000 +0.54% -0.12%forint >Polish <EURPLN= 4.2828 4.2937 +0.25% +0.16%zloty >Romanian <EURRON= 4.6860 4.6807 -0.11% -0.68%leu >Croatian <EURHRK= 7.4270 7.4270 +0.00% -0.23%kuna >Serbian <EURRSD= 118.3700 118.3900 +0.02% -0.06%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1017.54 1004.030 +1.35% +3.14%

0

Budapest 40625.70 40600.26 +0.06% +3.80%Warsaw 2356.79 2344.56 +0.52% +3.52%Bucharest 7064.97 7060.24 +0.07% -4.32%Ljubljana <.SBITOP 830.65 818.34 +1.50% +3.28%>Zagreb 1751.99 1747.60 +0.25% +0.18%Belgrade <.BELEX1 704.25 697.73 +0.93% -7.54%

5>

Sofia 563.27 565.56 -0.40% -5.25%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.8140 0.0500 +242bps +4bps

R>

5-year <CZ5YT=R 1.7580 0.0580 +210bps +3bps

R>

10-year <CZ10YT= 1.8240 0.0570 +159bps +3bps

RR> Poland

2-year <PL2YT=R 1.3960 0.0410 +200bps +3bps

R>

5-year <PL5YT=R 2.2140 0.0460 +255bps +2bps

R>

10-year <PL10YT= 2.7930 0.0340 +256bps +1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.15 2.19 2.20 2.01

<PRIBOR=

Hungary 0.30 0.52 0.77 0.13Poland 1.72 1.71 1.73 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Radu Marinas in Bucharest and Jason Hovet in Prague; Editing by Mark Potter and Andrew Cawthorne)