* Hungarian bonds firm on rate cuts expectations
* Polish zloty and bond yields fall on weak industry data
(Updates throughout)
By Sandor Peto and Marius Zaharia
BUDAPEST/BUCHAREST, Aug 19 (Reuters) - Prospects for
monetary easing strengthened Hungarian bonds and weakened the
forint more than its peers on Wednesday, while Polish bond
yields and the zloty briefly fell after poor industrial data.
Hungarian bonds yields dropped by almost 10 basis points at
the long and the short end of the curve, with the 5-year segment
holding closer to previous levels ahead of a market holiday
which precedes a central bank meeting on Monday, when most
analysts expect a 50 basis points rate cut [].
However, the bank has a track record of surprising markets,
highlighted by its July move to cut rates by 100 basis points.
"At least one foreign player is banking heavily on a
100-point cut, which is clearly visible on this illiquid market,
but we think the central bank will be more cautions than last
time," one dealer said.
In Poland, the zloty weakened briefly and bond yields
dropped by 4 basis points on 2-year and 5-year papers, after
July industrial output data came out weaker than expected
[]. Data also showed producer prices rose 3 percent
on the year last month, down from 4.1 percent in June.
"The Monetary Policy Council has been signalling a turn from
easing to neutral bias but still some members offer a glimmer of
hope for rate cuts and data like today's may mean those comments
will continue," said Rafal Benecki of ING Bank Slaski.
AT 1344 GMT, the forint <EURHUF=> was 0.5 percent weaker,
while the crown <EURCZK=> and the zloty <EURPLN=> were down
0.1-0.2 percent.
The crown, often regarded as a safe haven trade within the
region, firmed in the first part of the session before
regrouping with peers, helped by cross plays, dealers said.
"The zloty/crown trade has gone through the last few days,
with people selling euros for crowns then buying euros against
the zloty... now there is some unwinding of profits from that,"
said a Prague trader.
Five-year credit default swap (CDS) spreads -- a rough
equivalent to default insurance against a country's debt --
rebounded, with Poland's spread rising slightly to 137.4 from
Tuesday's 134, Hungary's to 264.4 from 258.9, while Czech
Republic's narrowed to 90.67 from 95.
IN GLOBAL HANDS
European stocks eased, under pressure from renewed risk
aversion. Prague's PX equity index <> and Bucharest's BET
<.BEI> led losses, falling around 2 percent. Hungary's BUX
<> and Poland's WIG20 <> shed less than one percent.
The region's assets remain heavily reliant on global market
sentiment changes which in the past few days caused some falls
after strong rises from lows hit early this year, dealers said.
Investors are watching for signs of the beginning of a
global recovery while in Central Europe, domestic demand, the
pace of interest rate cuts and a rise in budget deficits are key
local factors.
In Hungary, the annual growth of Hungarian gross wages
slowed to 1.1 percent in June from 2.9 percent in May,
indicating that domestic demand would remain sluggish.
[]
Poland, which has a bigger internal market than other states
in the region and has avoided recession unlike its neighbours,
said earlier this week that corporate wages rose 3.9 percent in
July, well above analysts' expectation for a 2.1 percent rise.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.64 25.609 -0.12% +4.34%
Polish zloty <EURPLN=> 4.176 4.169 -0.17% -1.46%
Hungarian forint <EURHUF=> 273.79 272.35 -0.53% -3.74%
Croatian kuna <EURHRK=> 7.318 7.308 -0.14% +0.64%
Romanian leu <EURRON=> 4.226 4.213 -0.31% -5.01%
Serbian dinar <EURRSD=> 93.23 93.387 +0.17% -4.02%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 99bps over bmk*
4-yr T-bond CZ4YT=RR -20 basis points to +132bps over bmk*
8-yr T-bond CZ8YT=RR +12 basis points to +261bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +366bps over bmk*
5-yr T-bond PL5YT=RR +6 basis points to +320bps over bmk*
10-yr T-bond PL10YT=RR +6 basis points to +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +673bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +607bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +523bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1644 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaux, writing by Sandor Peto and
Marius Zaharia, editing by ...)
