* Investors short-covering before Hungary reform plans
* Crown bounces around, hawkish comments have little impact
* Poland places yen bonds
(Adds bonds, Polish placement)
By Jason Hovet
PRAGUE, Jan 26 (Reuters) - Hungarian bonds extended a rally
on Wednesday as investors covered shorts before the government
lays out reform plans next month, while the Czech crown gave up
early gains despite hawkish comments from policymakers.
Dealers said foreign investors closed short positions out of
fear they might suffer losses if the reform plans are well
received by markets. Yields dropped by around 15 basis points
again with gains concentrated at the long end of the curve.
"The spread between Hungarian and Polish 10-year yields has
narrowed a lot as Hungary's risk assessment has improved due to
the upcoming government package," a Budapest trader said.
"This buying wave is nevertheless triggered by
short-covering rather than huge confidence (in the government's
economic policy)."
The Hungarian government on Tuesday criticised the central
bank's latest rate hike, on Monday, as unwarranted.
This was seen as another warning the government may try to
force the bank to adopt a more dovish policy stance once new
bank members, appointed by a government-controlled parliamentary
committee, take their seats in March.
"This is a new signal to markets: from March, the
new-composition council is highly unlikely to raise rates
further. Moreover, a new option has arisen: a rate cut,"
Cashline analyst Kornel Sarkadi Szabo wrote in a note.
Expectations that monetary tightening in Hungary has ended
have also supported bonds this week.
RATE VIEWS IN SIGHT
Markets were awaiting statements later from the U.S. Federal
Reserve, which were expected to be dovish, potentially lending
the euro, the region's reference currency, further support
against the dollar.
The crown <EURCZK=> was bid 0.3 percent down at 24.262 to
the euro by 1021 GMT. The unit has gained 3 percent in January.
The crown has surged this month to highs last hit in
November 2008, leading the region thanks to improving economic
figures and the start of a hawkish tone from the central bank.
But after testing fresh highs early in the Wednesday
session, the crown pulled back to fall on the day.
Raiffeisenbank dealer Ivo Prokop said a London name was mostly
on the sell side, while local accounts were buying the crown.
"The market is still speculating on pushing the crown lower
than 24 per euro," he said.
The Hungarian forint <EURHUF=> added 0.2 percent while the
Polish zloty <EURPLN=> dipped 0.1 percent. The Romanian leu
<EURRON=> was steady. Stocks rose, with shares in Budapest up
1.1 percent <>.
Poland placed 15-year bonds worth 18 billion Japanese yen on
Wednesday as part of a private placement operation, the finance
ministry said in a statement. []
While Hungary and Poland have started tightening policy,
analysts do not expect a Czech rate hike until mid-2011 and
markets are pricing in a hike within six months -- a view that
has changed little despite recent comments. []
Czech bond yields were little moved before the auction of a
benchmark 2024 bond at midday.
Czech central bank board member Eva Zamrazilova, the lone
voter for a hike at recent meetings, was quoted as saying late
on Tuesday that a neutral interest rate would be 1 percent to
1.5 percent under current conditions, higher than the base rate
of 0.75 percent that has been in place since May.
Bank Governor Miroslav Singer said this week the economy was
showing stronger-than-expected inflationary pressures, adding
later that the crown was close to its long-term trend despite
its appreciation this month. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.262 24.2 -0.26% +3.04%
Polish zloty <EURPLN=> 3.876 3.871 -0.13% +2.12%
Hungarian forint <EURHUF=> 274.54 275.14 +0.22% +1.25%
Croatian kuna <EURHRK=> 7.411 7.406 -0.07% -0.42%
Romanian leu <EURRON=> 4.26 4.258 -0.05% -0.63%
Serbian dinar <EURRSD=> 104.4 104.24 -0.15% +1.46%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to 46bps over bmk*
7-yr T-bond CZ7YT=RR -9 basis points to +70bps over bmk*
10-yr T-bond CZ9YT=RR -12 basis points to +85bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -4 basis points to +360bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +333bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -13 basis points to +522bps over bmk*
5-yr T-bond HU5YT=RR -21 basis points to +480bps over bmk*
10-yr T-bond HU10YT=RR -17 basis points to +413bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1122 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Catherine Evans)
