* Czech crown edges up, central bank ok with current levels
* Markets waiting for Hungary 2011 budget
* Inflation rising in the region;
* Polish yields tick 2 bps higher on budget deficit worries
(Updates with comments from Orban, Czech c.bankers)
By Marius Zaharia
BUCHAREST, Oct 12 (Reuters) - Hungarian bonds pared minor
losses on Tuesday after Budapest pledged extra efforts to stick
to its budget goals, while the Czech crown inched higher as
central bankers signalled little concern about its strength.
Prime Minister Viktor Orban said Hungary will take further
steps to ensure it meets its 2010 budget deficit target of 3.8
percent of gross domestic product (GDP) and reiterated plans to
bring next year's gap to below the European Union ceiling of 3
percent. []
With the tentative deadline for the release of the 2011
budget draft only days away, markets were not overly impressed
with his remarks and concerns lingered over whether the plan
would be credible enough in the eyes of investors.
Bond yields were a tick lower or flat across the curve in
the afternoon after trading 4 bps higher across the curve
earlier in the session. Global risk appetite will be the main
driver until budget details are made available, dealers said.
"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.
In Poland, five- and 10-year bond yields rose 2 basis points
in reaction to news 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, calculated according to the EU's methodology,
comes in well above the initial estimate of 6.9 percent.
"There is a rise in yields ... This could be connected with
news about the 7.9 percent deficit," one dealer in Warsaw said.
Poland, as the only country in Europe to have avoided
recession last year, has suffered less punishment from markets
than Hungary and Romania.
CROWN STRENGTH
The crown <EURCZK=>, the region's best performing currency
this year, bucked the trend on Tuesday and edged up 0.1 percent.
Central bank Governor Miroslav Singer said the country's
trade data did not suggest the current level of the exchange
rate would be unsustainable. [] []
His comments were echoed by rate-setter Kamil Janacek, who
said the crown traded slightly above forecast, but he did not
expect a big rise by the end of the year, while the bank may
also hike rates if Czech exports remained strong.
Debate over whether the banks should consider tighter
monetary conditions due to rising inflation is slowly emerging
in central Europe, although worries over a fragile economic
recovery and large budget deficits will likely prevail.
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.
[]
Poland, the country most likely to hike rates this year,
will post inflation figures on Wednesday.
By 1412 GMT, the Hungarian forint <EURHUF=>, the Polish
zloty <EURPLN=> and the Romanian leu <EURRON=> were 0.1-0.2
percent weaker, tracking global stock markets.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.496 24.524 +0.11% +7.44%
Polish zloty <EURPLN=> 3.964 3.954 -0.25% +3.53%
Hungarian forint <EURHUF=> 273.79 273.5 -0.11% -1.26%
Croatian kuna <EURHRK=> 7.321 7.319 -0.03% -0.16%
Romanian leu <EURRON=> 4.276 4.265 -0.26% -0.9%
Serbian dinar <EURRSD=> 106.22 106.23 +0.01% -9.73%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 94bps over bmk*
7-yr T-bond CZ7YT=RR +3 basis points to +104bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +113bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR +5 basis points to +364bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +322bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +544bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +512bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +446bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1612 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia;
Editing by Patrick Graham/Susan Fenton/Ruth Pitchford)
