* Investors cover shorts ahead of Hungary reforms
* Crown volatile, hawkish comments have little impact
* Poland places yen bonds
(Updates with Czech debt sale, Polish data, quote)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Jan 26 (Reuters) - Hungarian bonds
extended a rally on Wednesday as prospects of further interest
rate hikes eased and investors covered short positions in
anticipation of government reform plans due next month.
Dealers said foreign investors traded on expectations of the
reforms being 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.
Bond buying helped the forint <EURHUF=> outperform its peers
with a 0.4 percent rise, compared to 0.2-0.3 percent falls in
the Czech crown <EURCZK=>, the Polish zloty <EURPLN=> and the
Romanian leu <EURRON=>.
Bond yields may rise slightly before a Hungarian debt
auction on Thursday <HUISSUE> as investors try to ensure lower
prices for the primary sale, dealers said.
"I think the bonds will be sold smoothly (at the auctions),"
one Budapest trader said. "Market sentiment is robust, yields
might go slightly up before the auction but only slightly."
YIELD UP AT CZECH AUCTION
On Wednesday, the Czech Finance Ministry sold nearly what it
planned at an auction for a benchmark bond due in 2024, with the
yield rising but not as high as some in the market expected.
Secondary market yields had been quoted at 4.318/181
percent, their highest since July, ahead of the auction, before
dipping 2 basis points after the tender. []
Czech yields have followed peers higher in recent months,
with investors slowly factoring in tighter monetary policy in
some emerging markets.
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 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 expressed concerns about
inflationary pressures earlier this week. []
The crown pulled back after testing fresh highs early on
Wednesday, ignoring the hawkish comments. Raiffeisenbank dealer
Ivo Prokop said a London name was mostly on the sell side, while
local accounts were buying the crown.
In Poland, analysts said forecast-beating retail sales data
was unlikely to rush the central bank into raising interest
rates further after the recent hike. []
The country sold 15-year bonds worth 18 billion Japanese yen
on Wednesday as part of a private placement, the finance
ministry said in a statement. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.26 24.2 -0.25% +3.05%
Polish zloty <EURPLN=> 3.88 3.871 -0.23% +2.01%
Hungarian forint <EURHUF=> 274.1 275.14 +0.38% +1.42%
Croatian kuna <EURHRK=> 7.408 7.406 -0.03% -0.38%
Romanian leu <EURRON=> 4.267 4.258 -0.21% -0.8%
Serbian dinar <EURRSD=> 103.95 104.24 +0.28% +1.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -4 basis points to 50bps over bmk*
7-yr T-bond CZ7YT=RR -6 basis points to +73bps over bmk*
10-yr T-bond CZ9YT=RR -9 basis points to +88bps 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 -20 basis points to +515bps over bmk*
5-yr T-bond HU5YT=RR -24 basis points to +478bps over bmk*
10-yr T-bond HU10YT=RR -21 basis points to +409bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1702 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 and
Marius Zaharia; Editing by Catherine Evans, John Stonestreet)
