* Forint edges up to 9-mth highs before stabilising
* Zloty leads regional gains after breaking 4.16
* Longer-dated Hungarian yields fall 15 basis points
(Updates prices, adds quote, detail)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Oct 20 (Reuters) - Hungary's forint hit
its highest since January and longer-dated bonds firmed on
Tuesday on expectations the central bank will moderate further
rate cuts, while the Polish zloty breached a key level to the
euro.
The Hungarian central bank cut interest rates to a more than
three-year low of 7 percent on Monday, and central bank Governor
Andras Simor said more gradual cuts could come although there
was a limit. []
Since Monday's rate cut, investors have started to reverse a
steepening of the yield curve which was fuelled in the past two
months by expectations of further deep rate cuts.
Yields on 10-year paper fell by around 15 basis points on
Tuesday to about 7.10 percent, while 3-year yields rose 5 basis
points.
The spread between three- and 10-year yields has narrowed to
just 15 basis points from about 60 in two weeks and some traders
said the curve may even flatten out completely in the short
term.
"After the rate cut, people fell in love with anything
yielding more than 7 percent," one Budapest-based trader said.
"Confidence increased after the rate cut.
Analysts expect rates to bottom out below 6 percent next
year as the central bank seeks to revive one of the worst-hit
emerging European economies []. Monday's meeting
left many convinced the bank would now move to smaller
quarter-point steps after a series of bigger moves.
"The forint was supported by the fact that the Hungarian
central bank does not give the impression of having given up its
careful approach," Commerzbank analysts said in a note.
The Czech crown dipped after gains over the past week, while
the Romanian leu was steady with markets eyeing designate Prime
Minister Lucian Croitoru's efforts to form a new government.
By 1351 GMT, the forint <EURHUF=> was 0.1 percent up on the
day, slightly off 9-month highs of 263.75.
The zloty <EURPLN=> led minimal gains for the region after
pushing past resistance at 4.16 to the euro. On the day, it
gained 0.3 percent to trade at 4.157.
Central European markets have been buoyed by improved global
appetite for risk and regional bourses are trading at or near
2009 highs. Stocks rose by up to 1 percent on Tuesday.
STUCK FOR NOW
Strategists have stayed cautious in the face of still
sluggish industry, rising joblessness and spiralling budget
deficits in the region that have muted central Europe's markets
rebound compared to other developing economies.
The International Monetary Fund said Hungary must be ready
to take additional measures if needed to meet its budget deficit
targets this year and the next [].
A Reuters poll this month pointed to only modest gains for
most currencies over the next 12 months, with the zloty a strong
outperformer. []
Romania's leu <EURRON=> sat near a seven-month low, bid at
4.293 to the euro.
Dealers said the country's political woes, which may
undermine its efforts to meet conditions under an IMF deal, was
tempered by worries of central bank intervention at 4.3 per
euro, a level they say it has defended in the past weeks.
Political analysts give Croitoru little chance to win over
majority opposition support, which could prolong uncertainty
until the Nov. 22 presidential elections. []
"The market is in wait-and-see mode," one dealer said.
"We're most likely to wait until after the election."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.778 25.689 -0.35% +3.78%
Polish zloty <EURPLN=> 4.157 4.168 +0.26% -1.01%
Hungarian forint <EURHUF=> 264.5 264.72 +0.08% -0.36%
Croatian kuna <EURHRK=> 7.215 7.219 +0.06% +2.08%
Romanian leu <EURRON=> 4.293 4.29 -0.07% -6.49%
Serbian dinar <EURRSD=> 92.98 92.97 -0.01% -3.76%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +23 basis points to 122bps over bmk*
7-yr T-bond CZ7YT=RR -21 basis points to +126bps over bmk*
10-yr T-bond CZ10YT=RR -12 basis points to +92bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +352bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +307bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +279bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +10 basis points to +511bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +442bps over bmk*
10-yr T-bond HU10YT=RR -12 basis points to +386bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1651 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Jason Hovet and
Marius Zaharia; Editing by ...)
