* Leu firms to 8-mth, forint to 8-wk highs vs euro
* Record demand at Polish bond tender, Czech auction weak
By Marton Dunai and Marius Zaharia
BUDAPEST/BUCHAREST, Jan 13 (Reuters) - The Romanian leu and
the Hungarian forint hit multi-month highs on Wednesday as
central European markets returned to cautious optimism after
brief falls following China's surprise monetary tightening.
Central European markets have rallied since the start of the
year, as investors looked for cheap assets to park their cash,
but the region's high financing needs and shaky fundamentals
point to a bumpy recovery and make a case for differentiation.
Mixed Polish and Czech debt auctions showed sentiment
remained fragile and concerns over Greece's debt burden reminded
investors the region posed more risk than some other emerging
markets which last year rebounded to near pre-Lehman crash
levels.
"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."
At 1505 GMT, the Polish zloty <EURPLN=> was 0.4 percent
stronger on the day and the leu <EURRON=> was up 0.2 percent,
slightly off a fresh eight-month high against the euro. The
forint <EURHUF=> was 0.1 percent up after hitting a two-month
high earlier in the day, and the Czech crown <EURCZK=> was flat.
The leu outperformed this year, after lagging in the second
half of 2009, mostly as investors expect Romania to approve an
austerity 2010 budget this week and unlock a vital 20 billion
euro IMF-led aid deal after three months of political crisis.
But dealers said the currency's rally could come to an end
soon, because of weaker fundamentals compared to the region.
"The 4.1 level would be the first stop where we could see
some profit taking ... because of shaky risk appetite," one
dealer in Bucharest said.
"If risk stays on for another month, the leu could test
4.00, but beyond that there is a risk of seeing the central bank
on the (euro) buying side, to help exports. Fast firming doesn't
sit well with the central bank."
MIXED DEBT AUCTIONS
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, an auction to sell 10-year bonds was met with
thin demand [], a weak signal to open a year in
which the Czechs face record high borrowing, and pushing long
term yields about four basis points higher.
The Czech central bank could 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 the highest demand on record
for the two-year paper [] and pushed yields lower
by up to 5 basis points immediately.
"That's when you say that investors start to differentiate
and they pick (assets) what they think is better... based on
yield levels. They prefer the Poles now," one trader said.
Hungarian bonds dropped by up to 10 basis points. Some
analysts say 5-year Hungarian bonds may be among the most
attractive paper in the region, because of the high yield.
"We still think that the risk premia in Hungary rates are
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.
In the wider region, Serbia's central bank intervened in the
currency market on Wednesday, selling 23 million euros at a rate
of 97.25 per euro, but failed to stem a decline in the dinar
[].
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.167 26.172 +0.02% +0.58%
Polish zloty <EURPLN=> 4.056 4.071 +0.37% +1.18%
Hungarian forint <EURHUF=> 267.37 267.55 +0.07% +1.11%
Croatian kuna <EURHRK=> 7.29 7.272 -0.25% +0.26%
Romanian leu <EURRON=> 4.118 4.125 +0.17% +2.9%
Serbian dinar <EURRSD=> 97.27 97.38 +0.11% -1.43%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +1 basis points to 68bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +106bps over bmk*
10-yr T-bond CZ10YT=RR +13 basis points to +111bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -5 basis points to +379bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +335bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +277bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -10 basis points to +530bps over bmk*
5-yr T-bond HU5YT=RR -6 basis points to +494bps over bmk*
10-yr T-bond HU10YT=RR -7 basis points to +417bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1705 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 and
Marius Zaharia; Editing by Ruth Pitchford)
