* Crown weakens after surprisingly low inflation
* HUF still hurt by industry data, bounces slightly on trade
* Polish c.banker says rate hikes must continue
* Polish, Hungarian bonds weaken; auctions eyed
(Adds fixed income, quotes)
By Marius Zaharia
BUCHAREST, Feb 9 (Reuters) - Low inflation figures pushed
the Czech crown to its weakest in a week on Wednesday, and the
country's bonds outperformed central European peers as
expectations for an increase in interest rates faded.
Czech inflation came in at 1.7 percent in January, way below
a 2.3 percent consensus, easing expectations for monetary
tightening that have boosted the crown in recent weeks.
[]
"This is a dovish signal for monetary policy expectations
and bullish news for the CZK bond market," said Radomir Jac,
chief analyst at Generali PPF Asset Management.
At 1025 GMT, the crown <EURCZK=> traded 0.7 percent weaker
on the day at 24.149 per euro. It hit a one-week low of 24.180
per euro earlier in the session after the inflation release.
Czech bond yields fell in choppy trade.
The forint continued to retreat from the nine-month highs it
hit on Monday after Tuesday's disappointing industry data in
Hungary and in central Europe's main trade partner, Germany.
[]
"Those things obviously don't help the forint, and if you
take into account the strength of the dollar versus the euro
after yet another negative surprise, this time from Germany's
output figures, the slide makes more sense," a trader said.
The unit <EURHUF=> briefly inched up to 270.3 per euro after
data showed Hungary posted a higher-than-expected December trade
surplus, but fell back to trade 0.7 percent weaker on the day at
270.97. []
The market will also keep an eye on the minutes of the
January rate meeting of the National Bank of Hungary, in which a
very tight vote led to the third 25 basis point hike in as many
months to bring the key rate to 6 percent.
AUCTIONS
The Polish zloty <EURPLN=> weakened in line with its peers,
trading 0.4 percent down on the day, but the outlook for more
rises in interest rates from Warsaw remains strong.
Central bank board member Jerzy Hausner said in a newspaper
column that the central bank would continue to raise borrowing
costs to deal with imported inflation [].
That helped weaken bonds slightly across the curve ahead of
an auction to sell 3-5 billion zlotys in 2-year bonds.
"Every single comment (of MPC members) should be taken into
account in terms of interest rate increases," said Piotr
Zoltowski, dealer at BPH bank in Warsaw. "Calling for a hike in
the auction day may cause ... higher (yield) levels."
The Polish MPC raised interest rate in January by a moderate
25 basis points from an all-time low of 3.5 percent and is
expected to deliver more rate increases this year.
Hungarian bonds continued to retreat after strong gains in
the past weeks. The 3-year benchmark bond traded at yields of
6.9 percent, higher by 15 basis points from Tuesday.
One trader said profit-taking by one or more market players
had probably pushed up yields, while another trader said global
sentiment and domestic news had turned unfavourable.
"Tomorrow we will have (government bond) auctions <HUISSUE>
and now it has become questionable how they will go," one of the
traders said. "If there is no aggressive demand there, yields
can go further up."
Romania's leu <EURRON=> was flat.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.149 23.99 -0.66% +3.52%
Polish zloty <EURPLN=> 3.898 3.884 -0.36% +1.54%
Hungarian forint <EURHUF=> 270.97 269.2 -0.65% +2.59%
Croatian kuna <EURHRK=> 7.413 7.412 -0.01% -0.45%
Romanian leu <EURRON=> 4.256 4.253 -0.07% -0.54%
Serbian dinar <EURRSD=> 103.12 103.43 +0.3% +2.72%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 31bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +72bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +74bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +358bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +330bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +298bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +13 basis points to +506bps over bmk*
5-yr T-bond HU5YT=RR +18 basis points to +470bps over bmk*
10-yr T-bond HU10YT=RR +15 basis points to +417bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1225 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia,
editing by Stephen Nisbet)
