* FX stronger in line with euro/dollar
* CEE assets under pressure due to Egypt tensions
* Crown backed by expectations CNB may become more hawkish
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Jan 31 (Reuters) - Central European
currencies tracked the euro higher on Monday, but stocks fell
and regional assets could come under pressure if Egypt's
political situation deteriorates further.
Persisting street protests in Egypt caused a flight from
risky emerging assets on Monday amid fears the crisis may
spread. Central European stocks were victims of the search for
safe havens and fell 0.8-1.2 percent.
But currencies regained some of their Friday losses, also
helped by a stronger euro, their main reference currency, which
rose due to higher-than-expected inflation data in the euro zone
[].
At 1516 GMT, the Polish zloty <EURPLN=> was up 0.5 percent,
the Czech crown <EURCZK=> and Hungary's forint <EURHUF=> were
0.2 percent stronger, while Romania's leu <EURRON=> was flat.
"(The Egypt crisis) creates global tensions and triggers
selling pressure in risky assets, including central and eastern
Europe, where shares are being sold," one Bucharest dealer said.
Another trader said currencies could also be hit if the
crisis intensified, but the firmer euro provided some protection
for the moment.
Stronger currencies also helped bond markets, with Hungarian
yields falling 5-10 basis points from session highs and traders
said demand factors could provide further support for local debt
in the next two weeks ahead of significant bond expiries.
"(But) a spread of the madness in Northern Africa would
destroy expectations for further (bond market) gains," one
Budapest trader said.
RATES IN FOCUS
Domestically, investors were gearing up for rate decisions
in the Czech Republic and Romania on Thursday, with both central
banks expected to keep borrowing costs flat at record lows.
Markets will likely assess the statements following the
decision to see how soon to price an increase by Prague and a
cut by Bucharest. The crown may find support in expectations for
a more hawkish stance in the short term, dealers said.
The market expects the main rate to be at 1.25 percent in a
year's time in Prague from the current 0.75 percent, while in
Romania, rates are seen falling by 50 basis points to 5.75
percent by the end of the year. [] []
The International Monetary Fund is currently in Bucharest
reviewing Romania's 20 billion euro bailout and discussing fresh
agreements. Dealers said a release of the next tranche of funds
and a new deal were widely expected and already priced in.
Investors will likely watch for the length of a potential
new deal. A two-year programme that will cover the 2012
electoral year will be seen as a sign Romania is committed to
enforce lasting fiscal cuts, while a shorter deal will be seen
as a negative, dealers said.
On Monday, Romania announced plans to sell 5.4 billion lei
in local debt in February after it sharply overshot its target
this month on the back of easing political risks and the
approval of IMF-backed fiscal reforms. []
Yields have fallen this year, mostly at the shorter end of
the curve and are seen easing further this month, albeit at a
lower pace as liquidity was squeezed by massive debt issuance in
December and January.
"They can sell this amount, but they will not see falls in
yields similar to this month," said Vlad Muscalu, analyst at ING
Bank in Bucharest.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.236 24.295 +0.24% +3.15%
Polish zloty <EURPLN=> 3.925 3.943 +0.46% +0.84%
Hungarian forint <EURHUF=> 272.45 273.05 +0.22% +2.03%
Croatian kuna <EURHRK=> 7.413 7.421 +0.11% -0.45%
Romanian leu <EURRON=> 4.257 4.258 +0.02% -0.56%
Serbian dinar <EURRSD=> 104.37 104.31 -0.06% +1.49%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 38bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +70bps over bmk*
10-yr T-bond CZ9YT=RR -3 basis points to +84bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +364bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +350bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +323bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -12 basis points to +508bps over bmk*
5-yr T-bond HU5YT=RR +8 basis points to +469bps over bmk*
10-yr T-bond HU10YT=RR +12 basis points to +416bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1716 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz
and Marius Zaharia; editing by Stephen Nisbet)
