* Currencies gain on improving sentiment
* Poland's fiscal policy could weigh on zloty
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, July 20 (Reuters) - Emerging Europe's currencies
were stronger on Monday, with Hungary's forint and the Polish
zloty leading regional gains driven by rising stocks and a
successful Eurobond issue in Hungary last Friday.
At 0900 GMT the forint <EURHUF=> gained 0.5 percent against
the euro while the zloty <EURPLN=> was up 0.7 percent. Other
currencies were also broadly stronger.
Regional stock indices were also up on Monday morning,
rising some 1.0-2.6 percent.
"Sentiment is good, stocks in the region are performing
quite well ... and additionally Hungary's Eurobond issue was
successful," said one Warsaw-based dealer.
Last week Hungary priced a 1 billion euro, 5-year Eurobond
at 395 basis points over mid-swaps, tighter than the initial
guidance, and the deal attracted orders worth 2.9 billion euros.
[]
Analysts said however the zloty may come under pressure
based on a comparison of fiscal policies in Poland and Hungary.
"While Hungary remains on a fiscal tightening route, the
general government shortfall in Poland will widen massively in
2009-2010 unless the government takes decisive action," analysts
at BNP Paribas wrote in a note.
"This is partly driving our more bullish view on Hungary
over the medium term and explains our concerns in Poland."
Poland, the European Union's largest ex-communist economy,
is battling a sharp slowdown which has already prompted the
government to increase the 2009 budget gap to 27 billion zlotys
from 18 billion seen previously.
Central and eastern Europe has been recently underperforming
other emerging markets when risk appetite picked up, mostly
because of worries over currency devaluation in the Baltics and
over a frail banking sector burdened with foreign debt.
Also, help from the International Monetary Fund to countries
such as Latvia, Hungary and Romania came with requirements for
tight fiscal policies which will weigh on any potential
recovery.
Poland's Finance Minister Jacek Rostowski said earlier the
country's general government deficit may exceed 5 percent of
gross domestic product (GDP) in 2009, versus 4.6 percent
forecast earlier. []
The bond market was calm on Monday, with yields on Poland's
10-year papers narrowing slightly.
"We've got a summer lull now...even incoming data are
unlikely to affect the market, unless they are much different
than forecast," said one Warsaw-based fixed-income dealer.
Poland releases net inflation data for June on Tuesday and
retail sales and unemployment data on Thursday.
Elsewhere in the region, Hungary issues retail sales data on
Friday.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.827 25.886 +0.23% +3.59%
Polish zloty <EURPLN=> 4.298 4.327 +0.67% -4.26%
Hungarian forint <EURHUF=> 273.63 275 +0.5% -3.68%
Croatian kuna <EURHRK=> 7.332 7.334 +0.03% +0.45%
Romanian leu <EURRON=> 4.235 4.24 +0.12% -5.21%
Serbian dinar <EURRSD=> 92.9 92.831 -0.07% -3.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to +151bps over bmk*
4-yr T-bond CZ4YT=RR -20 basis points to +167bps over bmk*
8-yr T-bond CZ8YT=RR +9 basis points to +303bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -10 basis points to +376bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +302bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +272bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -28 basis points to +720bps over bmk*
5-yr T-bond HU5YT=RR -65 basis points to +633bps over bmk*
10-yr T-bond HU10YT=RR -53 basis points to +525bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1100 CET.
Currency percent change calculated from the daily domestic close
at 1600 GMT.
(Reporting by Reuters bureaus, writing by Dagmara
Leszkowicz, editing by Stephen Nisbet)
