* Moody's cuts Hungary to Baa3, outlook negative
* Forint weakens, CDS jump 20 bps
* Bond yields fail to breach key level, bounce back
* Other FX weaker, Hungary impact on region limited
(Updates with fresh quotes, prices)
By Gergely Szakacs and Marius Zaharia
BUDAPEST/BUCHAREST, Dec 6 (Reuters) - The forint fell on
Monday after Moody's Investors Service cut Hungary's credit
rating, but the risk of contagion to other central European
assets was seen limited, although they weakened as well.
Moody's cut Hungary's credit rating by two notches to Baa3
with a negative outlook citing concerns over long-term fiscal
sustainability. []
While expected, the two-notch downgrade, which puts the
Moody's rating on a par with that of Standard & Poor's at just
above "junk" grade, is the latest signal that markets are not
happy with the government's unorthodox economic policies.
Currency dealers said the forint underperformed but there
was no panic after the downgrade. Bonds recovered most of their
intra-day losses after hitting support levels.
"This is the fourth time this year that 8 percent (in
yields) proves a support for Hungarian bonds," one
Budapest-based trader said. "Moody's had been lagging in its
reaction, therefore their move was not a big surprise."
The cost of insuring Hungarian sovereign debt for five years
rose 20 basis points to 385 basis points, according to monitor
Markit []. The forint <EURHUF=> had weakened by 1.1
percent to 280.05 per euro by 1504 GMT.
Fitch Ratings has said it will review its rating, currently
BBB with a negative outlook, before the end of the year.
LITTLE REGIONAL IMPACT
The Polish zloty <EURPLN=> also fell 1 percent, with most
losses occurring towards the end of the session as trade got
thinner. The Czech crown <EURCZK=> was 0.4 percent lower, while
Romania's leu <EURRON=> was flat. Regional bonds were steady.
Dealers say the move in the zloty, usually more sensitive to
global risk appetite than its peers, was caused by weakness in
the euro, the region's reference currency, and had little to do
with Hungary's fiscal woes.
Although investors are also scrutinising Poland's fiscal
policy, its debt and finances are in better shape than Hungary's
and the Polish economy is expected to grow robustly while
Hungary's economic recovery remains sluggish.
A top aide to the prime minister said Poland's planned
pension reform will avoid the radical overhaul which has
unsettled investors in Hungary. []
"Moody's downgrade cemented HUF status (as) the weakest link
in the region," said Piotr Matys of 4Cast. "I don't expect
Moody's downgrade to have a significant impact on other
currencies in the region."
"Poland and Czech Republic have both much stronger
fundamentals. Correction in EUR/USD and softer global equities
are the main source of pressure on PLN and CZK at this stage."
Investors are watching a meeting of euro zone finance
ministers who are under pressure to take action and prevent a
debt crisis from spreading.
Some market players said negative sentiment could affect
fiscally weaker states in central Europe as well.
Romania's coalition government is set to approve a 2011
austerity budget this week, its spokeswoman said on Friday, a
move that should allow Bucharest to keep its IMF aid deal on
track. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.063 24.975 -0.35% +5.01%
Polish zloty <EURPLN=> 4.021 3.982 -0.97% +2.06%
Hungarian forint <EURHUF=> 280.05 277.06 -1.07% -3.46%
Croatian kuna <EURHRK=> 7.371 7.374 +0.04% -0.84%
Romanian leu <EURRON=> 4.303 4.303 0% -1.52%
Serbian dinar <EURRSD=> 107.04 106.92 -0.11% -10.43%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 104bps over bmk*
7-yr T-bond CZ7YT=RR +13 basis points to +95bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +98bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR +6 basis points to +361bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +307bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +7 basis points to +685bps over bmk*
5-yr T-bond HU5YT=RR +8 basis points to +622bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +524bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1604 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Gergely
Szakacs/Sandor Peto/Marius Zaharia, Editing by Catherine Evans)
