* Currencies track euro/dollar, weaken on low risk appetite
* Polish bonds continue rally, yields down sharply this week
* Hungary's market closed ahead of Monday rate decision
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Aug 20 (Reuters) - Worsening risk appetite
hit central European currencies on Friday as markets geared up
for central bank meetings next week, while Polish long-dated
bonds drew more investors chasing down value in higher-yielding
assets.
Investors have snapped up regional bonds this week as record
lows hit by German Bund yields drew attention to the high
premiums that emerging economies with relatively positive
fundamentals such as Poland or Turkey were offering.
Central Europe is perceived as having a better debt profile
than the euro zone periphery, but local factors such as
lower-than-forecast inflation readings in Poland, an expected
reduction in long-dated Czech debt supply and a big Hungarian
bond expiry next week have also fuelled demand.
Analysts say the pace of the rally was too high and it could
lose some steam next week, although there was still some room
for more gains as demand looked hefty.
"The rally on the bond market has continued and we are a bit
concerned about the pace," BNP Paribas said in a note.
"But we will give it more time as we see significant demand
from international investors."
Polish yields have fallen 12-28 basis points this week, with
10-year bonds the only ones to extend a rally on Friday in thin
trade, having fallen 5 basis points in the session.
Hungarian markets were closed for holidays on Friday, while
Czech yields lingered around lifetime lows.
Polish July inflation came in a touch lower than expected,
having a neutral market impact on Friday, but also giving no
reason for the rally to stop. [].
The Hungarian and Polish central banks are seen keeping
borrowing costs unchanged at their meeting on Monday and Tuesday
respectively, and bond markets will be watching for clues about
rate outlooks.
The only country in the region that failed to join the bond
rally was Romania, where the finance ministry's tactic to cap
yields at 7 percent at tenders has dampened investor interest in
trading the papers, which are mostly in the portfolios of local
banks.
Romania could not sell any of the 5-year bonds it auctioned
on Thursday, as investors had the alternative of getting the
paper from the secondary market, where it traded at 7.4 percent.
WEAK RISK APPETITE
Most emerging Europe's currencies weakened after comments
from an ECB rate-setter raised expectations the central bank
will keep monetary conditions loose for some time and as risk
appetite was hit by weak U.S. data []
At 1426 GMT, the Polish zloty <EURPLN=> and the Hungarian
forint <EURHUF=> traded 0.3-0.4 percent weaker on the day.
Romania's leu <EURRON=> rose by 0.2 percent in trade driven by
mainly by local commercial flows.
The Czech crown <EURCZK=> held on to its status as an
intra-region safe-haven and funding currency and edged up.
"The Czech crown remains an element of stability in the
central European region," said Jan Vejmelek, head of economic
and strategy research at Komercni Banka.
"A worsening global economic outlook and growing signs that
American and European monetary policy will remain relaxed boost
the aversion of investors towards riskier assets, with the
exception of the crown which stands firm."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.789 24.845 +0.23% +6.17%
Polish zloty <EURPLN=> 3.978 3.965 -0.33% +3.17%
Hungarian forint <EURHUF=> 279.6 278.5 -0.39% -3.31%
Croatian kuna <EURHRK=> 7.28 7.282 +0.03% +0.4%
Romanian leu <EURRON=> 4.222 4.229 +0.17% +0.36%
Serbian dinar <EURRSD=> 104.63 104.47 -0.15% -8.36%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +6 basis points to 116bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +119bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +118bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +393bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +372bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +307bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1526 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia,
Editing by John Stonestreet)
