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CEE MARKETS-Polish 10-year bond yield drops to 4-year low

Sandor Peto and Alicja Ptak

* Bond yields track core markets lower on politics, growth worries

* Poland's 10-year bond yield at lowest since early 2015

* Regional currencies set multi-month highs, stocks mostly ease

BUDAPEST/WARSAW, June 14 (Reuters) - Poland's 10-year government bond yield sank to its lowest level in more than four years on Friday after an attack on two oil tankers in the Gulf, which the United States blamed on Iran, led to global buying of less risky assets. Tehran denied the allegation following the attacks on Thursday, but concerns grew about a new U.S.-Iranian confrontation. The Polish paper traded at 2.3895% at 0843 GMT, down 3 basis points from Thursday's close. "(There is a) big drop in yields worldwide, (and) the rising presence of foreign investors dragged (Polish) yields down," said Michal Zak, dealer at mBank. "Yesterday's (Polish government bond) auction apparently has not covered all positions, if only a day after we see a 10 basis point drop," he added, referring to the fall in yield from Thursday's peak. Bucharest's government bond auction also drew robust demand on Thursday. Although a surge in wages in the region is pushing consumer prices higher, Poland has the lowest annual inflation in the region - revised up to 2.4 percent for May on Friday. Polish rate setter Jerzy Osiatynski said that the central bank may need to start to increase its record low interest rates next year, but in 2019 the cost of credit will not be changed.

The corresponding Hungarian yield dropped 4 basis points from Thursday's fixing to 2.75%. "This is what we see recently: bonds are the first to react," one Budapest-based fixed income trader said, adding that worries over global economic growth and politics had pushed yields lower anyway in the past weeks. "All yields are coming down in the world, independent of government budgets and other local factors," the trader said. Bond yields in fast-growing central Europe are above those in the United States, where 10-year Treasuries traded around 2.067%, and well above the corresponding Bund yield <DE10YT-RR> which fell to record lows on Friday near -0.27%. Regional stocks mostly eased as worries over the U.S.-China trade war and mixed economic data from China weighed on global stock markets. The United States is due to release key retail sales and industrial production data later on Friday. If the U.S. figures are weak, they are likely to reinforce expectations for Federal Reserve interest rate cuts, which have led to dollar selling in the past weeks, boosting Central European currencies to multi-month highs. The dollar moved sideways against a basket of currencies on Friday and Central European units were also treading water. The zloty, however, touched a 10-month high against the euro at 4.253, and the Czech crown a 5-month high at 25.55.

CEE SNAPSHOT ATMARKETS 1043 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.5620 25.5600 -0.01% +0.57%crown >Hungary <EURHUF= 321.8800 322.1400 +0.08% -0.25%forint >Polish <EURPLN= 4.2555 4.2564 +0.02% +0.80%zloty >Romanian <EURRON= 4.7225 4.7215 -0.02% -1.45%leu >Croatian <EURHRK= 7.4110 7.4130 +0.03% -0.01%kuna >Serbian <EURRSD= 117.8200 118.0000 +0.15% +0.41%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1046.99 1050.880 -0.37% +6.13%

0

Budapest 40279.81 40469.80 -0.47% +2.91%Warsaw 2285.58 2300.20 -0.64% +0.39%Bucharest 8482.64 8477.19 +0.06% +14.88%Ljubljana <.SBITOP 868.72 870.12 -0.16% +8.01%>Zagreb 1899.80 1901.30 -0.08% +8.63%Belgrade <.BELEX1 728.54 729.35 -0.11% -4.35%

5>

Sofia 578.23 578.71 -0.08% -2.73%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.6100 0.0240 +229bps +4bps

R>

5-year <CZ5YT=R 1.5540 0.0530 +216bps +7bps

R>

10-year <CZ10YT= 1.5840 -0.0140 +185bps +1bps

RR> Poland

2-year <PL2YT=R 1.5970 0.0010 +228bps +2bps

R>

5-year <PL5YT=R 1.9450 -0.0410 +256bps -3bps

R>

10-year <PL10YT= 2.4000 -0.0520 +266bps -3bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.17 2.06 1.95 2.17

<PRIBOR=

>

Hungary 0.29 0.44 0.57 0.18Poland 1.74 1.73 1.71 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Jason Hovet in Prague; Editing by Kirsten Donovan)