* Czech bonds rally; 2019 bond yield hits lifetime low
* Zloty, forint weaker on lower risk appetite
* Romania debt auction watched after well-bid Hungary tender
(Adds Hungary tender, quotes, detail)
By Marius Zaharia
BUCHAREST, Aug 12 (Reuters) - Czech bonds rallied on
Thursday, sending yields to lifetime lows as a smooth Hungarian
bond auction showed Central European debt remained attractive
despite recent fiscal jitters.
Hungary has been under close scrutiny from foreign investors
since it suspended an aid deal led by the International Monetary
Fund, but solid local demand has bolstered recent debt auctions.
The country sold 54 billion forints worth of bonds at
regular auctions on Thursday, increasing the 5- and 10-year
sales by 2 billion forints each from the original plan. Yields
dropped by up to 31 basis points. <HUAUCTION02>
Central Europe is seen having a better debt picture than
parts of the euro zone. However the region gets lower inflows
than emerging markets like South Africa, Turkey or Brazil due to
weaker growth prospects.
"I still think the main bid in the (Hungarian) auctions are
locals and we are seeing very little interest from foreign
investors in the primary market," said Peter Attard Montalto of
Nomura in London.
"That said, there is still the wall of money entering EM
funds which has to be deployed to Hungary regardless of fund
managers' views given that they do not want to be too far off
benchmark."
Czech bonds extended a rally on Thursday spurred by the
government's fiscal tightening plans.
The benchmark 2019 bond <CZ1002471=> yield touched a
lifetime low and was quoted down 9 basis points at 3.451
percent. Its yield spread over a comparable German bund has
tightened around 35 basis points since July.
"The rally on (the) bond market is possibly not yet over,
though beware of approaching supply as the room for more ASW
tightening is diminishing quickly," Komercni Banka dealers said
in a note.
Worries over a slowing recovery in the U.S. were still
hanging on the market and at 1053 GMT, the Hungarian forint
<EURHUF=> and the Polish zloty <EURPLN=> were 0.3-0.6 percent
weaker against the euro, while the Czech crown <EURCZK=> was
flat.
Romania's leu <EURRON=> edged up against the euro in thin
trade.
ROMANIA TENDER
Romania is seen having problems selling paper carrying
maturities over one year due to its tactic of rejecting yields
above 7 percent, while markets demand more to compensate for
uncertainty over implementation of recent austerity measures.
"Considering the negative sentiment on global markets and
that yields on secondary market are slightly above 7 percent ...
we believe that (Romania) will attract less than intended," ING
Bank said in a note.
Analysts say it is a matter of time before funding needs
pile up and the ministry will be forced to scrap its
stubbornness. This could happen as early as October as IMF/EU aid
disbursement could tide it over through September.
Polish bonds were stable ahead of key inflation data on
Friday, due to offer more clues on the interest rate outlook.
"Inflation data will be key for us because we're now
entering a time where interest rate hikes are possible," a fixed
income trader at a Warsaw bank said.
"The (hike) may come in September, maybe in October. Until
now it was more or less irrelevant whether inflation was 0.1-0.2
percentage points above or below consensus but now it matters."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.778 24.78 +0.01% +6.22%
Polish zloty <EURPLN=> 4.016 3.994 -0.55% +2.19%
Hungarian forint <EURHUF=> 281.8 281.1 -0.25% -4.06%
Croatian kuna <EURHRK=> 7.23 7.214 -0.22% +1.1%
Romanian leu <EURRON=> 4.231 4.239 +0.19% +0.15%
Serbian dinar <EURRSD=> 104.92 104.74 -0.17% -8.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +8 basis points to 126bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +114bps over bmk*
10-yr T-bond CZ9YT=RR -13 basis points to +109bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +417bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +395bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +337bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1153 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Marius Zaharia; Editing by Andrew Heavens)
