* Poland to start swappping EU funds in Q2
* Hungary bonds shade firmer, Czech bond auction heavily bid
* Leu hits fresh one-year high as IMF starts review
(Releads with zloty high, plan to sell euros in Q2)
By Gergely Szakacs and Sam Cage
BUDAPEST/BUCHAREST, April 27 (Reuters) - The Polish zloty
hit a two-month high on Wednesday after the Finance Ministry
said it will start exchanging European Union funds on the spot
market this quarter.
Romania's leu <EURRON=> also edged up, hitting a fresh
one-year high as the International Monetary Fund started a
review of its precautionary 5 billion euro aid deal which is
expected to be positive about the country's fiscal policies.
The Polish currency has gained about 1 percent since the
announcement last week of the plan to support monetary policy
and keep a lid on inflation by selling euros for the zloty,
which rose further on Wednesday as the government gave a firmer
timetable. []
The zloty <EURPLN=> traded 0.3 percent higher at 3.928 per
euro by 1357 GMT, also supported by data showing Polish retail
sales rose by 9.4 percent in March on an annual basis, more than
the 7.2 percent rise expected by analysts. []
The higher than expected retail sales data caused a slight
weakening of bonds on the short end of the yield curve as the
figures increased the odds of a rate hike in May.
Analyst are currently split over the timing of the next hike
with most of them expecting the next 25-basis-point move either
in May or June.
"In our opinion the (retail) data confirm the risk of a
strengthening of inflation impulses in the economy, but it is
likely not enough to convince the MPC (Monetary Policy Council)
to hike rates already in May," BZ WBK analysts said in a note.
Romania's leu has gained this year as the economy shows
signs of recovery and hit a new high after data showed the
first-quarter budget deficit was 1.0 percent of GDP.
"This means the quarterly deficit target agreed with the IMF
of about 1.2 percent of GDP has been reached," said ING's Vlad
Muscalu. "We had been looking for a figure closer to the target
level and view this release as supporting the idea that the
full-year deficit target will be met."
HUNGARIAN BONDS HOLD GAINS
In the Czech Republic, investors bid more than three times
the offer size at a three-year bond auction, pushing the yield
down as investors sought shorter-dated paper after a bond
matured earlier. []
"People are full of cash and are reluctant to prolong the
duration, so still prefer the short end and still believe sooner
or later yields will go up," said Petr Podolka, portfolio
manager at ING.
The crown <EURCZK=> hit an 11-week high in early trade after
the centre-right government survived a no-confidence vote late
on Tuesday, before retreating later in the session.
[]
The forint <EURHUF=> was flat and Hungarian bonds were
supported by optimism over the government's fiscal reform plans,
which investors hope will lead to a steady decline in the
country's debt over the medium term. That optimism has fuelled a
rally in Hungarian bonds in the past few weeks.
"Bonds are a shade firmer today, with yields down by a few
basis points, but turnover is low," a trader said. "The market
is eyeing the Fed."
The European Central Bank raised benchmark rates earlier
this month. In contrast, the Fed's policy-setting Federal Open
Market Committee, in a statement due at about 1630 GMT, is
expected to indicate it will pursue its $600 billion bond-buying
programme through to its scheduled conclusion at the end of
June. []
It is also expected to reiterate that it will keep interest
rates unusually low for "an extended period".
Very loose U.S. monetary policy has spurred an inflow of
funds into emerging markets including eastern Europe.
"I think for emerging markets in general (comments from the
Fed) will be bullish as we will see further talk of interest
rates on hold for an extended period," said Peter Attard
Montalto at Nomura in London.
"However for CEE in particular, I think people are looking
far more at country idiosyncrasies and as such we may well not
see a huge effect after a few days."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.095 24.049 -0.19% +3.76%
Polish zloty <EURPLN=> 3.928 3.941 +0.33% +0.76%
Hungarian forint <EURHUF=> 264.45 264.25 -0.08% +5.12%
Croatian kuna <EURHRK=> 7.355 7.329 -0.35% +0.34%
Romanian leu <EURRON=> 4.066 4.071 +0.12% +4.11%
Serbian dinar <EURRSD=> 100.61 100.62 +0.01% +5.28%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to -14bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +38bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +69bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +314bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +308bps over bmk*
10-yr T-bond PL10YT=RR -6 basis points to +262bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1452 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Editing by Ruth Pitchford)
