* Polish bonds fall on CPI rise
* Currencies retreat, but prospects good, dealers say
By Dagmara Leszkowicz and Sandor Peto
WARSAW/PRAGUE, Aug 13 (Reuters) - Polish government bonds
fell after higher-than-expected inflation figures on Thursday,
and the zloty gave up some of its early gains.
Other Central European currencies also retreated from early
highs, but dealers said a surge in equities markets in the world
and the region and good euro zone growth data would continue to
outweigh disappointing GDP figures from the region.
Hungary's forint <EURHUF=D2> led currency gains over
Wednesday, firming 0.5 percent against the euro to 270.2 by 1358
GMT, after the country sold all the bonds offered at its
auctions despite poor second-quarter GDP data. []
The zloty <EURPLN=> was up 0.2 percent against the euro at
4.145. The Czech crown <EURCZK=> firmed 0.1 percent, and
Romania's leu <EURRON=> was also a shade firmer.
The currencies retreated after U.S. data showed a surprise
fall in July, and Polish bonds fell as Polish annual inflation
came in higher than expected at 3.6 percent in July, hitting
hopes for further central bank interest rate cuts.[]
"Bonds slightly weakened because I think that some market
participants have hoped for one more rate cut while this piece
of data (July inflation) makes it rather improbable," said Pawel
Bialczynski a fixed income trader at BRE Bank.
Poland's economy slowed down drastically due to the global
crisis and other economies in the region are in deep recession.
Figures from Hungary and Romania showed bigger-than-expected
contractions in gross domestic product (GDP) in the second
quarter of 7.6 percent and 8.8 percent, while Czech retail sales
also showed signs of a slowing domestic economy.[]
However, second-quarter GDP figures in Western Europe's
biggest economies, key export markets for Central Europe, showed
a surprise return to growth.[]
"GDP data was bad, U.S. retail sales were bad, but the
euro-zone data was good, especially in France and Germany," said
one dealer in Bucharest.
BOTTOM MAY HAVE BEEN REACHED
The data, which many analysts say may point to the bottom of
the region's economic slide, failed to temper investor demand
for Hungarian bonds on Thursday as the IMF-aided country sold
15-year paper for the first time in a year. []
Hungarian yields rose slightly after the auctions as some
traders said demand from foreigners was weak at the auctions and
they may only want to buy at higher yields.
But dealers and analysts said the prospects of assets in the
European Union's emerging markets would remain good as long as
the global market sentiment remained optimistic.
"I'm most convinced about the zloty, it should strengthen
further," said Gunnar Tersman, analyst at Handelsbanken in
Stockholm, adding that the crown and the forint could follow
suit, though the forint's fundamentals were weaker.
"If there will be steady positive news flow, the zloty can
firm to beyond 4 (against the euro) in the not too distant
future," he said.
Poland's inflation rise is in theory positive for the zloty,
said Grzegorz Maliszewski, chief economist at Millennium Bank.
"(The data) is, however, negative for the debt market
because the market was pricing in rate cuts," he said.
Meanwhile, a Hungarian central banker said the economy
needed significantly lower interest rates to leave behind
recession.[]
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.796 25.821 +0.1% +3.71%
Polish zloty <EURPLN=> 4.145 4.153 +0.19% -0.72%
Hungarian forint <EURHUF=> 270.2 271.52 +0.49% -2.46%
Croatian kuna <EURHRK=> 7.318 7.32 +0.03% +0.64%
Romanian leu <EURRON=> 4.21 4.212 +0.05% -4.65%
Serbian dinar <EURRSD=> 93.42 93.436 +0.02% -4.22%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +28 basis points to 77bps over bmk*
4-yr T-bond CZ4YT=RR +38 basis points to +145bps over bmk*
8-yr T-bond CZ8YT=RR +15 basis points to +254bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +351bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +301bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +272bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -22 basis points to +671bps over bmk*
5-yr T-bond HU5YT=RR -54 basis points to +601bps over bmk*
10-yr T-bond HU10YT=RR -45 basis points to +515bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1558 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets:
All emerging market news []
Spot FX rates Eastern Europe spot FX <EEFX=>
Middle East spot FX <MEFX=> Asia spot FX <ASIAFX=>
Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Dagmara
Leszkowicz/Jason Hovet/Sandor Peto; Editing by Ruth Pitchford
and Andy Bruce)
