* Romanian markets cautious on second short-term auction
* Czech 5-year bond well-bid, Polish paper sees low demand
* Bonds mostly steady, Hungarian bonds gain on FX firming
(Adds bonds, updates prices)
By Jason Hovet and Jana Mlcochova
PRAGUE, July 14 (Reuters) - Stronger stock markets and a
firming euro underpinned emerging European currencies on
Wednesday, while two bond auctions in the region showed
contrasting results.
A Czech five-year bond <CZ1002737=> sale drew strong demand
and only a small rise in yield as markets appreciated the newly
elected government's austerity plans.
But demand for Polish debt of the same maturity was weak,
after a higher-than-expected June inflation reading strengthened
expectations of interest rate hikes this year.
The Hungarian forint <EURHUF=>, the region's weakest
performer this year, led the region with a 0.15 percent rise,
although it retreated from a three-week high hit in the morning.
Its rise lifted bonds, with yields dipping 3-4 basis points.
The Polish zloty <EURPLN=> added 0.12 percent. The Czech
crown <EURCZK=> shed 0.12 percent from Tuesday's close.
Markets got a lift from stocks, with equities across the
region rising by up to 2 percent, led by Bucharest <>,
after a good start to the U.S. earnings season. The euro,
central Europe's main reference currency, hovered around a
two-month high against the dollar on better risk appetite.
[]
"The positive sentiment on the zloty should continue and the
currency will probably follow euro/dollar moves," said one
Warsaw-based dealer.
However, dealers warned a turn downward in stocks or the
euro would drag on currencies.
The Romanian leu <EURRON=> bid down 0.1 percent, just off a
one-week low. Markets were focused on the possibility of the
finance ministry holding another short-term deposit auction to
try to plug its funding gap, which would hit the currency.
The ministry borrowed 1.1 billion lei on the money market on
Tuesday and could opt for a similar action if a fresh treasury
bill tender on Thursday is not successful. []
The end of interest rate easing cycles in the region and
growing financing needs have put upward pressure on yields,
putting new focus on debt auctions, particularly in countries
receiving IMF aid like Romania and Hungary.
CZECH, POLISH BOND AUCTIONS
Yields on Czech debt are under pressure as the government
has left most of its borrowing for the second half of the year
and markets are awaiting a euro bond, flagged at the beginning
of the year but continually delayed by the Finance Ministry.
However, pressure is capped by the new centre-right
administration's plans to cut the budget deficit, easing
pressure on the country's borrowing needs next year, and raising
hopes for a rating upgrade.
The Czech paper, a 3.40 percent coupon bond due in 2015
<CZ1002737=>, was quoted down 2 basis point at 3.026/2.921
percent. It was last auctioned in May with an average yield of
2.936 percent, but bid down from a June high of 3.234 percent.
In Poland, growing expectations of a rate hike this year
after a higher-than-expected inflation reading this week
dampened demand at the tender. []
"Last Friday the Finance Ministry placed five-year eurobonds
which is quite a lot and may have satisfied some demand (of
investors) which could potentially buy PS0415 (papers)," Adrian
Skubij, fixed income trader at ING Bank Slaski in Warsaw, said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.422 25.392 -0.12% +3.52%
Polish zloty <EURPLN=> 4.061 4.066 +0.12% +1.06%
Hungarian forint <EURHUF=> 277.49 277.92 +0.15% -2.57%
Croatian kuna <EURHRK=> 7.208 7.193 -0.21% +1.4%
Romanian leu <EURRON=> 4.256 4.256 0% -0.44%
Serbian dinar <EURRSD=> 104.27 104.09 -0.17% -8.05%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -7 basis points to 107bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +126bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +139bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +400bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +377bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +315bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +593bps over bmk*
5-yr T-bond HU5YT=RR -4 basis points to +561bps over bmk*
10-yr T-bond HU10YT=RR -3 basis points to +473bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1320 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus, writing by Jason Hovet;
Editing by Stephen Nisbet and Susan Fenton)
