* Zloty off 16-week highs, forint off 5-week highs vs euro
* Czech, Hungarian bond yields fall
* Euro rise, strong debt sales support currencies
(Recasts with new prices, comments)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, Aug 18 (Reuters) - The Polish zloty and
Hungarian forint rose on Wednesday, helped by gains in the euro
-- Central Europe's reference currency -- after a solid German
bond auction, but ended off early highs.
Hungarian government bonds continued to surge ahead of a
large expiry next week, and yields on Czech 15-year bonds fell
to a record low due to strong demand at an auction.
Central Europe's main currencies trimmed earlier gains in
late trade after equity markets fell due to uninspiring earnings
reports from U.S. retailers, which also drove the euro <EUR=>
back down against the dollar.
The zloty <EURPLN=> was bid a shade firmer to the euro at
3.942 at 1432 GMT, off 16-week highs hit earlier at 3.9285. The
forint <EURHUF=> was bid at 277.1, firmer by 0.35 percent from
Tuesday but down from an earlier 5-week high of 276.90.
The Czech crown <EURCZK=> eased a shade to 24.774 against
the euro, while the leu firmed slightly to 4.228.
The zloty broke below the 3.95 per euro mark in the previous
session on the back of stronger equity markets, and was also
helped by sound appetite for Polish debt.
European debt markets were bullish on Wednesday as German
government bond yields fell to record lows at a sale of 10-year
bonds and Portugal sold more debt than expected. []
In central Europe, Czech 15-year bond yields fell to a record
low, averaging 3.867 percent at an auction as the government is
expected to reduce the supply of long-dated local debt to cut
financing costs. []
"There are two factors that squeezed the (debt) market ...
Plans to move the duration of debt down, and probably the market
expects a eurobond auction of a bigger size," a Prague dealer
said.
Hungarian government bonds extended the past few days'
strong gains, with yields falling by about 20 basis points as a
300 billion forint bond expiry next week fuelled demand, mainly
from local investors, traders said. The yield on the five-year
2016/C bond fell 23 basis points to 6.45 percent.
"We expect the central bank (NBH) to keep its interest rates
on hold on Monday, which would be neutral to markets, therefore
the comments of the bank will be watched," one trader said.
Polish government bonds were flat after a rally in recent
days on bets that rate hikes are still some way off.
GROWTH PROSPECTS OVERSHADOWED
The strong European debt auctions raised expectations that
the debt outlook for European Union member states will improve
in the second half of the year.
The zloty's gain disregarded disappointing industrial output
data, which bolstered expectations Poland's central bank will
not rush to raise interest rates.
Nordea warned in a monthly note on emerging market
currencies that currencies in the export-reliant region remained
highly sensitive to the euro zone business cycle.
"Worse indicators out of Europe later in the year and
increased global risk aversion should ... lead to moderate
weakening of these currencies," it said. "The HUF (forint) is
most vulnerable to spikes in risk aversion due to the relatively
high government debt and large share of FX loans."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.774 24.763 -0.04% +6.23%
Polish zloty <EURPLN=> 3.942 3.943 +0.03% +4.11%
Hungarian forint <EURHUF=> 277.1 278.0 7 +0.35% -2.44%
Croatian kuna <EURHRK=> 7.271 7.25 -0.29% +0.53%
Romanian leu <EURRON=> 4.228 4.23 +0.05% +0.22%
Serbian dinar <EURRSD=> 104.503 104.39 -0.11% -8.25%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 96bps over bmk*
7-yr T-bond CZ7YT=RR +10 basis points to +122bps over bmk*
10-yr T-bond CZ9YT=RR +6 basis points to +110bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +400bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +378bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +323bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -21 basis points to +557bps over bmk*
5-yr T-bond HU5YT=RR -19 basis points to +513bps over bmk*
10-yr T-bond HU10YT=RR -15 basis points to +429bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1632 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Susan Fenton)
