* Leu firms to 8-mth, forint to 8-wk highs vs euro
* Record demand at Polish bond tender, Czech auction weak
BUDAPEST, Jan 13 (Reuters) - The leu hit eight-month and the
forint eight-week highs as central European markets returned to
cautious optimism on Wednesday after dips following China's move
to raise reserve requirements.
After initial falls, emerging European currencies rebounded
due to heavy euro selling by one major investor and fuelled
expectations that the region's bond and stock markets could post
further gains. Polish and Czech debt auctions were mixed.
The dollar's retreat against the euro indicated a rebound in
risk appetite after Tuesday's move by China's central bank,
which points to a tightening of global liquidity later this
year.
"After the Chinese news U.S. stocks fell, Asia too, but
after we came in in the morning, Dow futures <DJc1> were already
slightly in the positive," one Budapest-based dealer said.
Sentiment remained fragile, however.
The region's main stock indices were mixed, with Budapest's
BUX <> shedding 0.5 percent and Bucharest's BETI <>
gaining 1 percent. Poland's WIG <> firmed 0.3 percent and
Prague's PX <> eased 0.3 percent.
"The global liquidity boom that has been providing a good
environment for EMEA markets is a bit closer to ending," Danske
Bank said in a note commenting on the Chinese news.
"Furthermore, concern over the situation in Greece is
hitting sentiment in EMEA markets... we could see a rise in risk
aversion," it added, referring to Greece's debt problems.
[]
The forint <EURHUF=> was also helped by a single large euro
selling deal and the Hungarian and Polish units took the lead as
regional currencies firmed, dealers said.
The forint and the zloty <EURPN=> strengthened half a
percent against the euro by 1155 GMT, the Czech crown added 0.1
percent and the Romanian leu<EURRON=> hit eight-month highs as
it firmed by 0.2 percent.
Analysts and dealers said the prospects for the leu improved
as Romania was emerging from political turmoil.
Markets were eyeing a likely parliament decision on Thursday
to approve an austerity budget for 2010, a key condition for
unlocking a stalled 20 billion euro international aid deal.
DEBT AUCTIONS WATCHED
Investors closely watch risks of budget overshoots in the
region, which can affect debt supply levels and currencies.
While the Czech Republic, together with Poland, is regarded
fundamentally sounder than other economies in the region, its
budget is under scrutiny ahead of elections later this year.
On Wednesday it sold 5.35 billion crowns worth of 10-year
bonds. The bid/cover ratio fell to 1.21 from 1.5 at an auction
two months ago and the average yield rose to 4.303 from 4.18.
Long-term Czech yields rose by about four basis points after
the auction. Demand was thin, sending a bad signal to open a
year in which the Czechs face record high borrowing.
The Czech central bank can start to reverse its rate cuts
later this year and its bonds have not joined the early-year
rally in Hungary, where the central bank is expected to cut its
much higher interest rates further.
Poland's bond tender attracted record demand and pushed
market prices up even though the Polish central bank may also
hike interest rates later this year.[]
[]
Hungarian bonds moved sideways but swap yields dropped and
demand for short-term government paper remained strong. Traders
said longer yields were unlikely to drop before Thursday's bond
auctions <HUISSUE>, which are expected to trigger healthy
demand.
"We still think that the risk premia in Hungary rates are
still quite high both in local swaps and in the CDS space and we
are recommending receiver positions," Goldman Sachs said in its
daily note on global markets.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.152 26.172 +0.08% +0.63%
Polish zloty <EURPLN=> 4.049 4.071 +0.54% +1.36%
Hungarian forint <EURHUF=> 266.1 267.55 +0.54% +1.6%
Croatian kuna <EURHRK=> 7.288 7.272 -0.22% +0.29%
Romanian leu <EURRON=> 4.118 4.124 +0.15% +2.9%
Serbian dinar <EURRSD=> 97.32 97.38 +0.06% -1.48%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -5 basis points to 63bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +110bps over bmk*
10-yr T-bond CZ10YT=RR +5 basis points to +102bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 0 basis points to +384bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +334bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +276bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +537bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +499bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +422bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1255 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaux, writing by Marton Dunai;
Editing by Ruth Pitchford, John Stonestreet)
