April 3, 2014 / 1:25 PM / 4 years ago

CEE MARKETS 2-Hungarian, Polish bonds hold ground after strong debt sales

(Recasts with bond auction results, comments)
    * Hungary, Poland, lift bond offer; yields change little
    * More gains seen if ECB loosens policy, Hungary ratings
    * Slovenian 10-year yield lowest since joined euro zone

    By Sandor Peto
    BUDAPEST, April 3 (Reuters) - Hungarian and Polish
government bond yields changed little on Thursday after heavily
subscribed auctions, lagging a fall in debt yields on the euro
zone periphery.    
    But the strong demand signalled that Central European debt
markets have the potential to join a rally of higher-yielding
euro zone bonds later this year, market participants said.
    Hungary sold bonds worth 100 billion forints, more than its
60 billion forint original offer, in its last sale before
Sunday's election, in which Prime Minister Viktor Orban and his
Fidesz party are tipped to win a second term. 
    "A victory by Fidesz could have a positive impact as it
would confirm that there is no political uncertainty here," one
Budapest-based fixed income trader said.
    Poland's 5.78 billion zloty sale was also above its 3-5
billion zloty target. 
    Hungary sold 10-year bonds at an average of 5.61
percent, and Poland at 4.261 percent, both broadly
in line with market yields and well above the 3.291 percent at
an equivalent Spanish debt sale. 
    Slovenia's corresponding yield, meanwhile, fell
to 3.43 percent, the lowest since it joined the euro in 2007,
after a bond issue on Tuesday that covered its financing needs
for this year and left some resources for prefinancing debt that
will mature in 2015 and 2016.
    The European Central Bank kept interest rates on hold on
Thursday, but many investors expect it to loosen policy later to
fight the threat of deflation, and that could strengthen Central
Europe's high-yielding debt markets, traders and analysts said.
    "Many investors anticipate that the ECB will be forced to
loosen monetary policy within the next months, so they bet that
prices of Poland's bonds will go up," said Miroslaw Budzicki,
analyst at PKO BP in Warsaw.
    Central European markets have suffered two sell-off waves
this year due to contagion from wobbles in other emerging
economies. Neighbouring Ukraine's crisis and conflict with
Russia still pose a risk for the region's assets.
    "A significant exchange rate risk remains in Central Europe,
therefore I don't expect long-term yields here to get near
yields in the euro zone periphery," said Janos Samu, analyst of
Concorde Securities in Budapest.
    Investors still expect gains in medium- and long-expiry debt
instruments in the region, particularly if euro zone debt yields
decline further.
    "For (junk-rated) Hungary, a real rally would come only if
credit rating agencies upgrade it later this year, and that is
not impossible," the Budapest-based trader said. "The Poles,
with their better debt rating, are in a much better situation."
    The region's currency and equity markets were mixed, after a
rally in the past weeks on relief that the Ukraine-Russia
conflict has not escalated.
    Shares of Telekom jumped by over 4 percent in
Ljubljana after Slovenia on Wednesday called for bids for the
purchase of 75.6 percent of the company. 
    Croatian fertilizer producer Petrokemija gained
one percent after a statement by the Economy Minister that the
company, whose sell-off recently failed, will be restructured.
                       CEE MARKETS SNAPSHOT AT 1440 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.432    27.411   -0.08%  -0.36%
 Hungarian forint           306.950   307.410  +0.15%  -3.25%
 Polish zloty                 4.172     4.175   +0.08%  -0.52%
 Romanian leu                 4.473     4.465   -0.18%   -0.30%
 Croatian kuna                7.646     7.648   +0.03%  -0.37%
 Serbian dinar              115.290   115.410   +0.10%   -0.69%
 Note: daily change calculated from previous close at 1600 GMT
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2014
 Prague                      1018.15    1017.67  +0.05% +3.17%
 Budapest                  18134.26  18021.11   +0.63%   -1.09%
 Warsaw                     2459.76   2473.45    -0.55% +2.30%
 Bucharest                  6424.06   6431.97   -0.12%   -0.83%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.347    -0.026   +15bps     -3bps
   5-year                1.101     -0.002   +41bps      -1bps
  10-year                2.146    -0.001   +52bps     -1bps
   3-year                4.510     0.000   +421bps    -1bps
   5-year                4.800     -0.010   +411bps    -2bps
  10-year                5.610    0.000    +398bps    -1bps
   2-year                3.060    0.000    +286bps    -1bps
   5-year                3.550   +0.020    +286bps   +1bps
  10-year                4.260  +0.020    +263bps   +1bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.410   0.420  0.440   0.37
 Hungary                      2.830   2.980  3.200   2.67
 Poland                       2.750   2.750  2.850   2.72
 Note: FRA quotes are for ask prices
 (Reporting by Michal Janusz in Warsaw, Marja Novak in
Ljubljana, Igor Ilic in Zagreb; Editing by Toby Chopra, John

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