* Czech 5-yr bond oversubscribed twice at auction
* Zloty leads currency easing on profit taking
* Hungary lifts GDP fcast for 2011, stems forint decline
(Recasts with new comments, updates prices)
By Sandor Peto and Jana Mlcochova
BUDAPEST/PRAGUE, Dec 8 (Reuters) - Poland and the Czech
Republic drew strong demand at their final debt auctions of the
year on Wednesday as investors favoured emerging markets over
troubled euro zone countries.
"As a whole, CEE bonds are attractive at the moment
considering the risk in the European Union periphery," said
Diana Gesheva, an emerging markets analyst at 4Cast.
"Investors are directing their flows elsewhere and Central
Europe offers good returns. Even higher-risk Hungary has managed
to attract considerable demand recently despite the downgrade,"
she said, referring to Moody's downgrade of Hungary's credit
rating this week.
The Czech government sold 5.1 billion crowns ($268.7
million) worth of a 3.40 percent government bond due in 2015
<CZ1002737> in the competitive round of the auction. Investors
bid a total of 11.704 billion crowns and the average yield
reached 3.07 percent.
"I can see solid demand and the rise in yield is exactly in
line with the rise in yields on majors," said Josef Bednar,
fixed-income dealer at PPF Banka.
He said the government's 2011 borrowing plan unveiled last
week, which assumes less debt than expected, made Czech bonds
attractive. []
Poland sold 1.07 billion zlotys in floating-rate bonds
maturing in 2021 and 0.98 billion zlotys in inflation-linked
bonds maturing in 2023.
The average yield of the CPI-linked bonds dropped to 3.077
percent from 3.097-3.106 percent due to expectations for higher
prices.
Analysts see some turbulence in the bond market ahead as
Warsaw is set to approve plans this month to cut transfers to
private pension funds, key investors in Warsaw's stock market
and among the biggest holders of Polish government bonds.
[]
ZLOTY LEADS LOSSES
The Polish zloty underperformed its regional peers on
Wednesday as investors took profits on the currency ahead of the
year-end but dealers said its weakness did not reflect Polish
fundamentals.
The zloty <EURPLN=> was down 0.7 percent at 4.044 against
the euro by 1518 GMT, while the forint was 0.05 percent lower at
277.58. The forint was quoted at 68.64/94 to the zloty
<PLNHUF=R>, continuing to slide from a peak of around 70.1628 on
Monday.
"The zloty is still relatively well-owned, and some profit
taking (typical at year-end) is manifesting in the zloty's
underperformance because of thin markets," Roderick Ngotho,
strategist at Royal Bank of Scotland, said in a note.
"The result is zloty/forint heading lower, which is a
misleading signal if taken at face value," he said.
Ngotho said he doubted that short zloty/forint was "a new
year-end trade".
The Polish central bank wants to see the zloty appreciate.
Central bank rate setter Andrzej Kazmierczak told Reuters on
Wednesday the currency was trading close to what was justified
by Poland's economic fundamentals. []
One dealer said the forint might be outperforming because
the government lifted its 2011 GDP forecast to above 3 percent
and Hungary had solved its short-term deficit problem by
deciding to move private pension fund assets into the state
budget. []
Analysts have been optimistic about Poland, which has a much
lower debt burden and better economic growth prospects than
Hungary. Hungary's unorthodox temporary fiscal measures have
triggered concerns, prompting Moody's downgrade of its rating to
just above "junk" status.
The Czech crown, seen as the region's safe-haven currency,
rose 0.3 percent on Wednesday to 25.039 to the euro.
However, KBC bank in a note on the region said the crown
remained at risk of weakening after it briefly touched its
200-day moving average at 25.12 on Tuesday.
The Romanian leu <EURRON=> dipped 0.09 percent to 4.298, and
has shown little reaction to parliament's approval of IMF-backed
pension reforms on Tuesday. []
Approval of the reforms improve Bucharest's chances of
keeping a vital 20-billion-euro international bailout on track
but the government still faces a time-consuming potential no
confidence vote over other IMF-backed reforms and its budget
plan for 2011.
The government is expected to survive another no-confidence
vote, but political uncertainty would cancel out potential
currency gains, dealers said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.038 25.111 +0.29% +5.11%
Polish zloty <EURPLN=> 4.045 4.017 -0.69% +1.46%
Hungarian forint <EURHUF=> 277.63 277.43 -0.07% -2.62%
Croatian kuna <EURHRK=> 7.381 7.381 0.00% -0.97%
Romanian leu <EURRON=> 4.298 4.294 -0.09% -1.41%
Serbian dinar <EURRSD=> 107.31 107.21 -0.09% -10.65%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -10 basis points to 92bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +83bps over bmk*
10-yr T-bond CZ9YT=RR 0 basis points to +87bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -10 basis points to +365bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +341bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +297bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -19 basis points to +653bps over bmk*
5-yr T-bond HU5YT=RR -12 basis points to +587bps over bmk*
10-yr T-bond HU10YT=RR -9 basis points to +491bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1623 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaux, writing by Marton Dunai/Sandor
Peto/Jana Mlcochova; Editing by Susan Fenton)
