* Crown falls less than peers as mkts cheer election result
* Czechs to pick up borrowing pace in Q3, yields edge higher
* Hungary bond yields up as key rate left flat on Monday
(Updates throughout)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, June 1 (Reuters) - The Czech crown held on
to half of its post-election gains on Tuesday as central
European assets were hit by signs economic recovery may slow,
while Hungarian bonds fell after the rate easing cycle stopped.
Emerging European assets were hit by a bearish sentiment
over growth and debt in the euro zone, which intensified on
Tuesday as investors in the UK and the U.S. returned from a long
weekend and priced in Spain's ratings downgrade, weak data and
an ECB warning banks faced a "second wave" of loan losses.
Manufacturing data in the region did little to brighten the
picture. Czech and Polish manufacturing remained in positive
territory, but Hungary's saw a drop and analysts said the
economic recovery may slow in the coming months [].
At 1346 GMT, the Hungarian forint <EURHUF=> fell 0.5
percent, the Polish zloty <EURPLN=> fell 0.7 percent, while
Romania's leu <EURRON=> remained decoupled from regional peers
and traded flat in thin trade, just below 4.2 per euro where
dealers expect the central bank to intervene.
Stocks were down around 2 percent.
"After recent positive growth data sparked revisions of
growth forecasts higher, we probably have all the good news
priced in and new figures will not be so promising," said Gyorgy
Barcza from K&H Bank.
The crown <EURCZK=> fell 0.7 percent. It outperformed in the
morning, but regrouped with the region after data showed the
Czech state budget gap jumped to more than half the full-year
target at the end of May [].
That compared to a 1.5 percent gain on Monday after election
results convinced markets a stable and fiscally prudent
government was likely to result.
Hungary's bond yields rose about 10 basis points in reaction
to the central bank's decision to leave interest rates unchanged
at a record low of 5.25 percent on Monday, while raising its
end-year inflation forecast [].
Czech bonds also edged up after the government announced a
ramped-up third quarter supply calendar, picking up the pace of
issuance to meet record borrowing needs this year.
[]
The benchmark 2019 bond <CZ1002471=> yield rose 3 basis
points to 4.04 percent after the calendar release.
CROWN'S OUTLOOK
Some analysts say the crown could attack this year's high of
25.015 to the euro if coalition talks go smoothly. Others say a
fast appreciation of the unit would lead to increased risk of
currency intervention and remained cautious.
"The new government will be more likely to keep public
finances in check and this will put even more strain on domestic
demand," BNP Paribas said in a note.
"This in turn has long been our base case scenario for no
rate hikes in the foreseeable future and growing possibility of
currency interventions. Therefore, we would use any
CZK rallies to add to shorts."
Czech right-wing parties reached broad agreement on Monday
on government priorities, but said building a coalition would
require tough talks with a third centrist party. []
Public Affairs party manager Vit Barta was cited as saying
on Tuesday there was still an option the party would not join a
coalition with the Civic Democrats and TOP09, but would support
it in parliament.
A possible centre-right coalition could be the strongest in
18 years in a country that has not had a stable government in
the past decade, causing it to lag its neighbours in reforms.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.677 25.499 -0.69% +2.5%
Polish zloty <EURPLN=> 4.099 4.072 -0.66% +0.12%
Hungarian forint <EURHUF=> 275.88 274.49 -0.5% -2%
Croatian kuna <EURHRK=> 7.257 7.259 +0.03% +0.72%
Romanian leu <EURRON=> 4.18 4.191 +0.26% +1.37%
Serbian dinar <EURRSD=> 102.41 102.43 +0.02% -6.38%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +7 basis points to 132bps over bmk*
7-yr T-bond CZ7YT=RR -4 basis points to +157bps over bmk*
10-yr T-bond CZ9YT=RR +10 basis points to +145bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +418bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +380bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +320bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +10 basis points to +565bps over bmk*
5-yr T-bond HU5YT=RR +18 basis points to +538bps over bmk*
10-yr T-bond HU10YT=RR +14 basis points to +473bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1646 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia; editing by ...)
