* Forint firms through 268.7/EUR, bond yields at 3-mth lows
* Investors eye Hungary reforms, five-year CDS drop
* Crown testing break of 24, last seen in Nov. 2008
* Romania, Czech Republic seen holding rates on Thursday
(Updates with Orban comments, FX poll, quotes)
By Gergely Szakacs and Marius Zaharia
BUDAPEST/BUCHAREST, Feb 2 (Reuters) - Hungary's forint
briefly broke through the key 268.7 level to hit nine-month
highs on Wednesday, while the Czech crown tested a November 2008
high ahead of Thursday's rate-setting meeting.
Hungary, which carries the highest premium for insuring
against default of any eastern European Union member, saw its
five-year credit default swaps fall 27 basis points to 318 basis
points as concerns about euro zone peripheral debt eased.
The forint, second behind the safe-haven crown with a 3.5
percent gain in 2011, has benefited from a cumulative 75 basis
point increase in Hungarian interest rates over the past three
months and increasingly bullish fiscal reform expectations.
The government is preparing a fiscal adjustment package
worth 600 billion to 650 billion forints ($3.05-3.30 billion) to
ensure the budget deficit remains low after 2012, when temporary
taxes worth 1.3 percent of GDP are due to be phased out.
On Wednesday, Prime Minister Viktor Orban dubbed state debt
"public enemy No. 1" and said he supported changes to
constitution that will trigger automatic measures if a certain
debt level is breached. []
"It adds to the good sentiment," one Budapest trader said.
"These are very different comments from what he said (last year)
that we don't need the IMF."
At 1446 GMT, the forint <EURHUF=> was 0.6 percent stronger
versus the euro at 268.6, slightly off a nine-month high of
268.45, but still on the stronger side of the key 268.7 level,
which market participants see as a frail resistance.
"I don't think that 268.70 would represent very strong
resistance now," said Janos Samu, analyst at Concorde in
Budapest.
The forint also traded near its highest level this year
against the zloty at 68.8 <PLNHUF=R>. RBC Capital Markets exited
a tactical long PLN/HUF trade due to the forint's
outperformance, it said on Wednesday.
But a Reuters poll showed the Polish zloty was still
expected to lead gains in the region, with a 5 percent rise seen
in the next 12 months, supported by a strong economy and
potential rate hikes. []
Hungarian government bond yields continued to fall, hitting
three-month lows on Wednesday.
CZECH, ROMANIA RATES SEEN FLAT
Markets were gearing up for central bank meetings in the
Czech Republic and Romania on Thursday, both expected to leave
borrowing costs flat at 0.75 and 6.25 percent, respectively,
with focus on the tone of the statements.
In Romania, any sign that the central bank was less
concerned about second round effects on inflation from last
year's value-added-tax hike would be seen as a dovish signal and
markets would bring forward rate easing expectations, possibly
helping primary debt markets.
In Prague, investors expect rate-setters to turn hawkish.
"The markets are seemingly pricing in somewhat of a hawkish
statement by the Czech central bank (CNB) following the
announcement," Danske Bank said in a note.
"Our own expectations are also on the hawkish side, as we
see the CNB moving closer to a rate hike and raising rates
possibly before year end -- indicated as the timing of a first
rate hike in the CNB's latest inflation report."
The crown <EURCZK=> shed 0.3 percent versus the euro over
the day but at 24.111 it stayed close to the key 24 level.
Dealers said levels around 23.700-23.800 would provide the
next major test, the crown having met resistance at those levels
when central European currencies started to retreat from record
highs at the end of 2008.
"I think people will start to look to buy (euros) around
23.900 to cover shorts," a Prague dealer said.
The zloty <EURPLN=> was 0.3 percent weaker at 3.912, while
the Romanian leu <EURRON=> was unchanged at 4.256.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.111 24.037 -0.31% +3.69%
Polish zloty <EURPLN=> 3.912 3.899 -0.33% +1.18%
Hungarian forint <EURHUF=> 268.59 270.3 +0.64% +3.5%
Croatian kuna <EURHRK=> 7.42 7.415 -0.07% -0.54%
Romanian leu <EURRON=> 4.256 4.256 0% -0.54%
Serbian dinar <EURRSD=> 103.89 104.403 +0.49% +1.96%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -9 basis points to 30bps over bmk*
7-yr T-bond CZ7YT=RR +3 basis points to +66bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +79bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +341bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +314bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +290bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -9 basis points to +488bps over bmk*
5-yr T-bond HU5YT=RR -7 basis points to +544bps over bmk*
10-yr T-bond HU10YT=RR -13 basis points to +390bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1646 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus; Writing by Gergely Szakacs and
Marius Zaharia; Editing by Catherine Evans)
