* FX, bonds weaker; mkts waiting for Hungary 2011 budget
* Inflation rising in the region
* Polish yields tick 2 bps higher on budget deficit worries
(Recasts with bond moves, detail, quote)
By Marius Zaharia
BUCHAREST, Oct 12 (Reuters) - Central European bond yields
ticked higher on Tuesday after Poland said its budget deficit
this year would much higher than expected and due to fiscal
uncertainty in Hungary, while currencies and shares tracked
global stock markets lower.
Hungary's Prime Minister Viktor Orban reiterated on Tuesday
the government's plan to keep the budget deficit target at 3.8
percent of GDP this year and cut it below the European Union
ceiling of 3 percent in 2011. []
But markets were still unsure of his ability to achieve that
and bond yields rose about 4 basis points on the day across the
curve, driven also by lower risk appetite.
Hungary's 2011 budget draft, expected to be released later
this week, is the most anticipated event in the region.
"Recent months have shown that the Hungarian government's
rhetoric can turn both unpredictable and market unfriendly,"
Citigroup said in a note. "This makes us wary and we think the
risk of negative fiscal surprises is probably bigger than market
participants seem to believe."
Hungary spooked investors this summer when it halted talks
with the International Monetary Fund and the European Commission
over its 20 billion euro aid deal.
Budget deficit worries hurt Polish markets as well, with
five- and 10-year bond yields rising 2 basis points after a
government source told Reuters late on Monday that the 2010
budget deficit was set at 7.9 percent of GDP in its most recent
notification to the European Commission. []
The figure, counted according to the EU methodology, comes
in well above the initial estimate of 6.9 percent.
"There is a rise in yields ... This could be connected with
the news about the 7.9 percent deficit," one dealer in Warsaw
said.
Poland, the only country in Europe to have avoided recession
last year, has suffered less punishment from markets than
Hungary and Romania for its fiscal troubles due to its better
fundamentals.
HIGHER INFLATION
Following releases showing rising prices in Romania and
Czech Republic on Monday, data from Hungary showed inflation
picked up to 3.8 percent in September from August's 3.7 percent.
[]
Inflation has been of less concern to regional policymakers
since the financial crisis, with central banks in Hungary and
Romania more focused on the impact of weak public finances and
international bailouts on their debt and currency markets.
However, debate over whether the banks should consider
tighter monetary conditions due to rising inflation is emerging.
Poland, the country most likely to hike rates this year, will
post inflation figures on Wednesday.
By 0942 GMT, the Polish zloty <EURPLN=> led losses with a
0.3 percent fall on the day, bid at 3.967 per euro. The
Hungarian forint <EURHUF=> and Romanian leu <EURRON=> were 0.2
percent weaker, while the Czech crown <EURCZK=> was a touch
stronger.
"Taking into account ... the strengthening of the dollar
against the euro, we don't exclude further weakening of the
zloty (to around 3.96-3.99/EUR)," Bank BPH analysts said.
Stock markets were up to 1 percent weaker.
Dealers said talk that three banks were considering leaving
Hungary due to a financial sector tax could weigh on the forint,
but both the central bank and the country's banking association
said they had no such information. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.493 24.524 +0.13% +7.45%
Polish zloty <EURPLN=> 3.967 3.954 -0.33% +3.45%
Hungarian forint <EURHUF=> 273.92 273.5 -0.15% -1.3%
Croatian kuna <EURHRK=> 7.322 7.319 -0.04% -0.17%
Romanian leu <EURRON=> 4.273 4.265 -0.19% -0.83%
Serbian dinar <EURRSD=> 106.27 106.23 -0.04% -9.78%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +7 basis points to 101bps over bmk*
7-yr T-bond CZ7YT=RR +5 basis points to +106bps over bmk*
10-yr T-bond CZ9YT=RR +5 basis points to +114bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +385bps over bmk*
5-yr T-bond PL5YT=RR +7 basis points to +366bps over bmk*
10-yr T-bond PL10YT=RR +6 basis points to +323bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +8 basis points to +545bps over bmk*
5-yr T-bond HU5YT=RR +9 basis points to +514bps over bmk*
10-yr T-bond HU10YT=RR +8 basis points to +448bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1142 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 Marius Zaharia;
Editing by Patrick Graham and Susan Fenton)
