* FX slip on dollar firming, Czech crown hits 11-week low
* Hungarian debt auction well bid, Romania cuts sale
(Updates throughout)
BUDAPEST/PRAGUE, October 22 (Reuters) - Central European
currencies retreated on Thursday, hit by a firming dollar which
pushed the Czech crown to an 11-week low, but Hungary's bonds
continued to rally after investors flocked to a regular auction.
Hungarian yields dropped at Thursday's sale of 3-, 5-, and
10-year bonds and the debt agency sold 60 billion forints ($338
million) worth of bonds, more than offered. []
Secondary market yields were lower after the auction, with
the 3-year down 5 basis points on the day at 6.78 percent.
Hungarian yields have been halved since March peaks as
investors, many foreign, return to the region's higher-yielding
but riskier assets and the Hungarian central bank cut interest
rates to a three-year low, with more easing expected.
"Trees do not grow into the sky, there is a limit for the
yield falls, and I think that we have already passed that limit,
but you can see, it just goes on and on," one trader said.
In contrast, Romania sold less than planned at a 3-year bond
sale where the yield was unbudged at 10 percent. []
Currencies weakened on Thursday, with the dollar's firming
versus the euro weighing, knocking out key stop-loss barriers.
The Polish zloty led losers with a 0.7 percent drop to 4.19
to the euro after the government said on Wednesday it had given
up its 12 billion zloty 2009 privatisation plan [].
Poland is counting on state asset sales to keep budgets in
check this year and next. The statistics office, citing the
finance ministry's forecast, said the general government deficit
would stand at 6.3 percent of GDP in 2009. []
"Many bullish PLN comments are based on the assumption of
forthcoming privatisation inflows," UniCredit analyst Gyula Toth
wrote to clients in a morning note.
"We see some risks that EUR/PLN moves a little bit higher in
the near term (probably to around 4.25-30)."
CAUTION AHEAD
Hungary's forint <EURHUF=> lost 0.5 percent.
The Czech crown pared some losses after touching an 11-week
low above 26 per euro, a level dealers said would continue to
provide resistance. The Czech unit has been pressured this month
by expectations of looser monetary policy.
The Romanian leu <EURRON=> was stuck at 4.29, with concerns
over efforts to form a new government countered by worry the
central bank would intervene above the 4.30 per euro level.
Romania's opposition has refused to back central banker
Lucian Croitoru in his bid to become prime minister, extending
political deadlock in the IMF aid country. []
Central European markets have jumped in the last half year,
with bourses near 2009 highs, bond yields lower and currencies
gaining up to 13 percent since April, led by Hungary's forint.
But analysts have said the rally should cool or reverse in
view of still sluggish industrial output in central Europe,
along with rising joblessness that will dent domestic demand and
push government budget deficits up. []
Erste Group said on Thursday it closed a bet on the
narrowing spread of Czech to German 10-year bonds <CZ1000822=>
<DE10YT=RR> after quicker than expected tightening.
The spread of yields has narrowed around 50 basis points
since August, mainly from a drop on the Czech side with the
yield premium now around 100 basis points over German bunds.
"We believe a correction on Czech bonds is in order... For
the time being we prefer to take profit and stay away from the
market," Erste said. It added the spread could narrow in a year.
--------------------------MARKET SNAPSHOT-----------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.935 25.85 -0.33% +3.15%
Polish zloty <EURPLN=> 4.19 4.162 -0.67% -1.79%
Hungarian forint <EURHUF=> 265.78 264.54 -0.47% -0.84%
Croatian kuna <EURHRK=> 7.215 7.216 +0.01% +2.08%
Romanian leu <EURRON=> 4.288 4.287 -0.02% -6.38%
Serbian dinar <EURRSD=> 93.097 93.057 -0.04% -3.89%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +10 basis points to 80bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +97bps over bmk*
10-yr T-bond CZ10YT=RR +9 basis points to +90bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +493bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +435bps over bmk*
10-yr T-bond HU10YT=RR -3 basis points to +384bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1527 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Writing by Jason Hovet, Marton Dunai and Balazs Koranyi;
editing by Chris Pizzey/Ruth Pitchford/Toby Chopra)
