* Forex eases, bond yields rise as ECB signals rate hike
* Czech 3x6 FRA at 1-year high, pricing 25 bps rate hike
* Hungary to revamp cbank Monetary Council on Monday
(Recasts with FRAs, bonds, new prices)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, March 4 (Reuters) - Central European
currencies and government bonds eased on Friday after the
European Central Bank (ECB) signalled tighter policy ahead.
Forward rate agreements spreads rose, indicating
expectations that central banks in the region may lift their own
rates to fight rising inflation pressure and follow the ECB.
Czech 3x6 forward rate agreements (FRA) <CZK3X6F=>,
indicating 3-month interest rates in three months time, have
risen to a one-year high and point to more than a quarter-point
hike by the central bank by early June. <CZKFRA> <>
Hungary's FRA instruments are pricing in a small chance for
a quarter-point rate hike this year, even though parliament is
seen appointing dovish rate setters on Monday. []
ECB President Jean-Claude Trichet stunned the markets on
Thursday by signalling that the bank may lift rates as soon as
next month.
Like the ECB, Central European central banks face increasing
inflation pressures from rising raw material and food prices.
An ECB move could put pressure on central banks in the
European Union's eastern wing to raise their own rates which are
mostly higher than ECB rates to include higher risk premiums.
"The initial reaction in the CEE markets (to the Trichet
comments) has been relatively modest and in our view there is
clearly a potential for CEE yields to rise further if European
yields continue this uptrend," Danske Bank said in a note.
"We especially see potential for Czech yields to rise as
these have for some time been lower than we consider to be
justified by Czech fundamentals," it added.
HUNGARY CBANK AHEAD OF REVAMP
Government bond yields continued to edge higher on Friday
after rises following Trichet's comments on Thursday.
Hungary's forint <EURHUF=>, which has see-sawed since the
Tuesday reform announcements by the government, was bid down a
quarter percent to the euro at 272.72 at 1115 GMT.
A Moody's rating agency official said late on Thursday that
the measures were supportive but that implementation and growth
risks remained. []
Hungary's new rate setters to be named and appointed in the
next few days will not have much room to lower rates even though
they arrive with a mandate to soften policy, dealers said.
"The structural reforms could also fuel inflation... and
then it will be very difficult to cut rates," one bond trader
said. "It's possible, but that would have a price in the forint
exchange rate."
The Polish zloty <EURPLN=> was down by 0.1 percent at 3.994
to the euro, just off the psychologically key 4 per euro level.
The Czech crown <EURCZK=>, seen as a safer haven in the
region, inched up 0.15 percent and the Romanian leu <EURRON=>
edged down 0.1 percent.
Analysts and dealers said the prospects of lower carry in
emerging Europe -- where monetary tightening has started already
in Poland and Hungary but questions remain over policy -- has
dented currencies' attraction.
"We think the market will bet on a higher rates scenario in
the euro zone, with uncertainty remaining in Poland concerning
further moves by the Monetary Policy Council (MPC). Such a
discrepancy may push the zloty to a level above 4 against the
euro," BPH Bank analysts said in a note.
"Consequently, the MPC may change its outlook on
inflationary risks and seriously consider increasing rates at
the coming sitting."
Polish FRAs are pricing in four 25 basis point rate hikes
until the end of this year to bring the main rate to 4.75 pct.
Romania's central bank may confound expectations of a rate
cut this year as it struggles with imported inflation.
[]
The finance ministry rejected all bids at a 3-year debt
tender on Thursday as rising money market rates -- due to
squeezed liquidity -- weigh on demand. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.263 24.3 +0.15% +3.04%
Polish zloty <EURPLN=> 3.994 3.989 -0.13% -0.9%
Hungarian forint <EURHUF=> 272.72 272.05 -0.25% +1.93%
Croatian kuna <EURHRK=> 7.405 7.418 +0.18% -0.34%
Romanian leu <EURRON=> 4.212 4.207 -0.12% +0.5%
Serbian dinar <EURRSD=> 103.39 103.62 +0.22% +2.45%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to 6bps over bmk*
7-yr T-bond CZ7YT=RR -6 basis points to +63bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +72bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +332bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +325bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +297bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +4 basis points to +573bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +468bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +398bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1215 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus; Writing by Jason Hovet/Sandor
Peto; Editing by Hugh Lawson)
