* Fed bond buying programme sends more cash to EM
* Zloty, forint to benefit most; CEE rates may not rise fast
* Warsaw stocks highest since Aug 2008
* Czech c.bank keeps rates on hold as expected at 0.75 pct
* Romania signals it may scrap yield cap
(Updates with Romania tender, Czech cbank comments)
By Jason Hovet
PRAGUE/BUCHAREST, Nov 4 (Reuters) - The Czech crown rose to
a two-year high on Thursday and Warsaw blue-chips hit a similar
peak, leading emerging European gains after the U.S. Federal
Reserve opened the way for more money flows into global markets.
In Romania, the finance ministry sold fewer three-year
treasury bonds than planned, with the average yield rising 30
basis points to 7.1 percent. That suggested it might have
scrapped a six-month long yield cap strategy [].
Analysts had been expecting for months for the ministry to
find it difficult to hold on to its self-imposed 7 percent
ceiling in November, when it faces a financing peak.
"This is an expected development, a positive one, though I
think the ministry would start paying much more in the near
term," said economist Vlad Muscalu of ING Bank in Bucharest.
The Fed committed to buy $600 billion in U.S. Treasury bonds
in a second round of quantitative easing (QE2) to support a
struggling U.S. economy on Wednesday despite worries it could do
more harm than good. []
The Fed move is seen driving more money into emerging
markets as investors seek higher yields. Latin American and
Asian policymakers vowed on Thursday to use fresh measures to
curb capital inflows and protect currencies. []
Emerging European policymakers are not expected to follow
their lead as currencies still have not fully recovered from the
economic crisis that started two years ago. But QE2 will limit
scope for central banks that are close to hiking interest rates,
such as Poland and to some extent the Czech Republic.
CZECH RATES
The Czech central bank left its main rate unchanged, as
expected, at a record low of 0.75 percent. []
Later in the day, it cut its growth forecast for 2011 and
projected that interest rate hikes could be pushed back towards
the end of next year. Czech IRS and FRAs fell after the
announcement. [] []
The zloty <EURPLN=> rose 0.8 percent to bid at 3.9 by 1437
GMT, at a 2-1/2 week high. The Hungarian forint <EURHUF=> also
edged up. The two are likely to benefit the most from the yield
hunt in emerging Europe, but dealers said gains were limited for
now as the size of the Fed stimulus had mostly been priced in.
The Czech crown <EURCZK=>, which has led central European
currency gains this year, had become stuck in a range the last
month before breaking out on Thursday with a half percent gain
to its highest since November 2008 at 24.347 per euro.
It later retreated slightly due to the lower growth forecast
and was bid at 24.435.
BNP Paribas had recommended going short on the euro versus
the crown before the meeting as policymakers would likely be
tolerant, and the government was driving fiscal tightening.
The Czech government has pushed an austere 2011 budget,
which has raised its outlook in the eyes of ratings agencies.
Hungary has also introduced a tighter budget for next year,
but Standard & Poor's kept the country's outlook on negative on
Wednesday and warned of future budget risks. []
The country sold more bonds than planned at its first tender
since its 2011 budget announcement, with yields rising slightly
from Wednesday's secondary market levels.
Warsaw's blue-chip index <> rose 2 percent to its
highest since August 2008. Budapest stocks <> also gained.
Bank BPH said QE2 and likely delay in European Central Bank
rate tightening could lead to strong zloty gains that would hurt
economic recovery and put pressure on the central bank.
Polish policymakers left interest rates at a record low 3.5
percent last week, but did raise the reserve requirement rate.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.435 24.5 +0.27% +7.71%
Polish zloty <EURPLN=> 3.9 3.931 +0.79% +5.23%
Hungarian forint <EURHUF=> 272.19 272.55 +0.13% -0.68%
Croatian kuna <EURHRK=> 7.342 7.343 +0.01% -0.45%
Romanian leu <EURRON=> 4.289 4.292 +0.07% -1.2%
Serbian dinar <EURRSD=> 107.16 107.56 +0.37% -10.53%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -15 basis points to 72bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +91bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +113bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +6 basis points to +547bps over bmk*
5-yr T-bond HU5YT=RR +2 basis points to +515bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +456bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +380bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +319bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1437 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia; Editing by Ruth Pitchford/Sujata Rao)
