* Moody's sees upward pressure on Poland, Czech ratings
* Tight Polish, Czech debt supply to support market
* Currencies fall from session highs, down on day after data
* Romania sells above yield cap, but no strategy change seen
By Marius Zaharia and Jason Hovet
BUCHAREST/PRAGUE, Sept 16 (Reuters) - Central European
currencies dropped for a second straight session on Thursday,
while Polish and Czech bonds struggled to hold recent gains
despite clear signs of tight supply ahead.
A summer rally in Polish and Czech assets has slowed this
month but dealers and analysts see room for further gains this
year in their currencies -- which are already top performers in
central Europe -- and lower debt supply ahead will support
bonds.
Poland priced a 1 billion Eurobond issue on Thursday at 120
basis points above mid-swaps, following a 2 billion euro Czech
Eurobond last week at a price a touch tighter.
With lower debt and better economic growth prospects than
many eastern European and euro zone periphery countries, the two
countries have had an easier time in debt markets than states
like Romania, which has struggled with domestic debt sales.
Ratings agency Moody's said on Thursday it saw some upward
pressure on ratings in Poland and the Czech Republic thanks to
fiscal adjustments. []
The Czech Finance Ministry's debt chief Petr Pavelek told
Reuters on Thursday that borrowing in 2011 would probably be at
the low end of an estimated range, which is expected to fall
from this year's record high borrowing. []
The spread of the Czech benchmark 2019 bond yield
<CZ1002471=> narrowed against a comparable German bund to a new
low around 87 basis points, down 3 basis points on the day.
In Poland, bonds were a touch stronger in the middle of the
curve after Deputy Finance Minister Dominik Radziwill said debt
issuance on the domestic market in the fourth quarter would be
significantly lower than in the third quarter. []
The rest of the curve was flat, but dealers said it would
stay supported. "The minister's comments are supportive for the
market, particularly at the mid-term," said Krzysztof Izdebski, a
dealer at PKO BP bank.
Bond yields in the two countries have dropped to new lows
since the summer.
By 1440 GMT, the Polish zloty <EURPLN=> lost 0.4 percent and
the Czech crown <EURCZK=> 0.2 percent, while the Romanian leu
<EURRON=> and Hungarian forint <EURHUF=> dropped 0.2 percent --
all falling from morning highs after disappointing U.S. factory
activity data.
Dealers also said some negative spillover from the Russian
rouble's drop on Thursday was hurting appetite in the region.
DIFFERENT PICTURE
Moody's upbeat comments on the Czech and Polish ratings
contrasted with Hungary. The agency warned on Wednesday it could
downgrade Hungary if the government fails to present a
consistent plan to address fiscal issues. []
Hungarian bond yields rose by up to 10 basis points on
Thursday, with dealers saying market players were taking any dip
in yields as an opportunity to sell bonds in a negative bet on
the government's austerity drive.
Hungarian yields hit three-week lows earlier this week after
a recent spike.
In Romania, the finance ministry sold two thirds of the
amount planned at a 10-year bond auction, the only paper for
which the ministry is willing to accept yields slightly above
its self-imposed 7 percent cap. []
But analysts said it did not signal an end to the cap.
"This auction does not change the whole debate that we have
been having for a long time," said Vlad Muscalu, an analyst at
ING Bank in Bucharest. "They seem to make this compromise only
for this paper.
An unstable political situation that threatens International
Monetary Fund-mandated reforms, together with rising inflation
expectations, have increased upward pressure on yields since
early May.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.649 24.612 -0.15% +6.77%
Polish zloty <EURPLN=> 3.95 3.936 -0.35% +3.9%
Hungarian forint <EURHUF=> 282.55 282.00 -0.19% -4.32%
Croatian kuna <EURHRK=> 7.281 7.28 -0.01% +0.39%
Romanian leu <EURRON=> 4.248 4.24 -0.19% -0.25%
Serbian dinar <EURRSD=> 105.36 105.28 -0.08% -9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 94bps over bmk*
7-yr T-bond CZ7YT=RR +6 basis points to +84bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +87bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR -8 basis points to +361bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +298bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +583bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +541bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +447bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1640 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 Susan Fenton)
