BUDAPEST: Hungarian assets were little changed on Friday ahead of a Moody's rating review due after local markets close, which may lift the country back into investment grade status from 'junk' for the first time in almost five years.
Investors are cautious as most of them expect an upgrade later this year rather than on Friday, while expectations for further monetary loosening by the European Central Bank on Thursday are more crucial to Central European markets.
"Disappointment over ECB easing would have much bigger negative impact than disappointment over Moody's," one fixed income trader said in Budapest.
"The latter would rather mean no further strengthening of bonds," he said.
Government bond auctions in Poland and Hungary drew robust demand on Thursday, but yields have risen by a few basis points instead of falling due to some concerns over a rise in US Treasuries yields in the past week.
Investors will closely watch US economic figures, including payroll data due at 1330 GMT on Friday, for any sign that a Federal Reserve rate hike could return to the agenda.
The forint was flat at 309.90 against the euro at 0934 GMT, while the zloty firmed 0.3 percent to 4.333, with the Polish unit rebounding from 7-week lows against the forint.
The Budapest Stock Exchange's main index dropped half a percent after stopping just short of 6-year highs as the shares of OTP, Central Europe's biggest independent lender, failed to benefit from news on higher-than-expected fourth-quarter earnings and dividend on 2015.
"Portfolio quality has improved, true, but the period of strong profits has not come yet, only in promises," said Monika Kiss, analyst of Equilor brokerage.
Euro zone member Slovakia's 10-year government bond yields, at around 0.4 percent, traded near 10-month lows ahead of elections on Saturday which Prime Minister Robert Fico's leftist Smer party is set to win according to opinion polls.
"Fiscal policy committed to further consolidation along with the quantitative easing operations of the European Central Bank keep the Slovak government bond yields up to 5-year maturities in the negative territory, the first such occurrence in the history of the Slovak government bond market," said Sberbank analyst Vladimir Vano.
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