* Hungary 3-yr bond yield at 5-year low on rate outlook
* FX up as stock markets hit multi-month highs
* Czech crown lags on poor retail sales
(Adds quotes, detail)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, March 16 (Reuters) - Hungarian three-year
bond yields dropped to their lowest in five years on interest
rate cut expectations, while the Czech crown lagged emerging
European currencies due to poor retail sales data.
Hungarian yields have fallen sharply this year, with the
3-year yield <HU3YT=RR> dropping some 720 basis points over the
past 12 months, as the central bank is seen cutting rates
further from the current record low of 5.75 percent.
Investors are also increasing exposure in eastern Europe,
which is seen as in a better debt position than parts of the
euro zone, where finance ministers backed on Tuesday plans to
aid debt-ridden Greece if the country seeks it [].
But elections next month in Hungary and later in the year
across most of the region are an ongoing risk for the debt
markets rally, analysts say.
"Correction can come any time as yields have fallen a lot,"
one trader in Budapest said. "(But) something should
significantly change in the mind of investors for yields to rise
a lot from here."
The forint <EURHUF=> hovered near five-month highs, bid up
0.3 percent at 263.89 per euro at 1506 GMT, while the Czech
crown <EURCZK=> was steady, lagging the region as a deep fall in
retail sales in January could delay rate hikes [].
"Czech retail sales were very poor and it will force the
central bank on low (rate) levels for an extended period," one
Prague dealer said, adding that markets were looking at a rate
decision in the U.S. overnight, with any upbeat comment on the
recovery likely to give a boost to emerging markets.
Rates in the Czech Republic, currently at a record low of 1
percent, on par with the euro zone, had been seen raised in the
second half of the year, but recent currency strength has
prompted some strategists to reverse such bets.
The Polish zloty <EURPLN=> rose 0.5 percent to 3.875 against
the euro, but was about half a percent off last week's 15-month
high and Romania's leu <EURRON=> was flat.
Stocks also rose, with Hungary's main index <> climbing
to two-year highs, Romanian shares <> hitting 19-month
peaks and Czech shares <> touching seven-week highs.
CROSS TRADES
The zloty has led a market rally in central Europe this year
as investors favour the region for its better growth prospects
than some western peers and as they worry about the debt burdens
of countries on the euro zone periphery.
But policymakers have begun to fret that strong currencies
could harm economic recovery and have talked down the rally in
recent weeks, managing to stabilise the Polish zloty and
virtually freeze the Romanian leu.
Those comments also triggered exits from long zloty/crown
trades within the region, which have been favoured by investors
due to the Czech unit's lower rates. Also, BNP Paribas noted on
Tuesday some liquidation of long zloty/forint positions.
"As quick rate hikes hopes dissipate, zloty appreciation
could slow down," the bank said.
However, a Polish central banker gave a contrasting signal
on Tuesday, saying the bank should start raising rates at the
end of 2010 as inflation is likely to pick up next year.
[]
Data showed wages grew faster than expected last month in
Poland, while corporate employment fell, but analysts saw no
major impact on monetary policy []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.456 25.475 +0.07% +3.39%
Polish zloty <EURPLN=> 3.875 3.896 +0.54% +5.91%
Hungarian forint <EURHUF=> 263.89 264.71 +0.31% +2.45%
Croatian kuna <EURHRK=> 7.251 7.263 +0.17% +0.8%
Romanian leu <EURRON=> 4.088 4.086 -0.05% +3.65%
Serbian dinar <EURRSD=> 99.7 99.79 +0.09% -3.83%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +7 basis points to 85bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +117bps over bmk*
10-yr T-bond CZ10YT=RR +1 basis points to +104bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +382bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +302bps over bmk*
10-yr T-bond PL10YT=RR -10 basis points to +251bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +489bps over bmk*
5-yr T-bond HU5YT=RR +2 basis points to +432bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +406bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1706 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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