* Forint leads FX gains helped by stronger euro/dollar
* Correction seen short-lived as uncertainty looms
* Hungarian bonds stable, 3-month T-bill tender eyed
(Adds detail of upcoming Hungary T-bill tender)
By Marius Zaharia
BUCHAREST, July 20 (Reuters) - The forint rose on Tuesday
after recent heavy losses but analysts said it and other
Hungarian assets looked set to fall further as rattled markets
continued to trade on the country's dispute with international
lenders.
A bounce in the euro against the dollar early on Tuesday was
the main trigger for a correction after the forint fell more
than 3 percent on Monday to hit levels last seen in April 2009,
but the unit may test even weaker levels later this week,
dealers said.
A three-month T-bill auction with results due at 0930 GMT
would likely give a clearer picture of investors' sentiment
towards Hungary.
Analysts say the government is probably playing tough with
international lenders to prove itself to its voter base ahead of
local elections due on Oct. 3 and will probably reach an
agreement with the IMF and the EU eventually. []
But markets may not wait until then. Danske Bank said in a
morning note a sell-off in Hungarian assets could gain further
momentum in the coming weeks and technically it was hard to see
much resistance to further forint weakness.
"We corrected a bit from yesterday, partly on the EUR/USD.
but there will be no serious correction until the government
comes out and calms markets again," one dealer in Budapest said.
"We might be in for a prolonged period of uncertainty."
At 0831 GMT, the forint <EURHUF=> was up 0.4 percent from
Monday's close to 289.71 per euro. The Polish zloty <EURPLN=>
was 0.2 percent firmer, while the Czech crown <EURCZK=> and the
Romanian leu <EURRON=> were virtually flat.
CDS spreads narrowed by 6 basis points from Monday's levels,
Markit data showed. Bonds were stable in thin trade across the
region, while stock markets were slightly higher.
Markets in Poland, the Czech Republic and Romania showed on
Monday they were strong enough to decouple from Hungary's
problems as long as they remained on the austerity path.
AUCTION EYED
A fixed income trader said Hungary's debt management agency
AKK may have to reduce its HUF 45 billion offer at the auction
as sentiment remains jittery, but that would not impact
Budapest's ability to finance itself.
It would also not be unusual for the region, which is in a
far better debt position than many euro zone countries. Romania
has either rejected all bids or cut tenders across maturities
since early May when pressure on yields rose on worries over the
success of the government's austerity drive.
Hungary's central bank kept interest rates at 5.25 percent
on Monday, but made clear it was ready to intervene in currency
markets to defend the forint, adding it may also raise interest
rates if needed. []
Some players in the market were already pricing in higher
rates and pressure on Hungarian yields would probably remain
elevated, especially at the short end of the curve. FRAs were
starting to price in rate hikes for the next six months.
Without an IMF/EU deal Hungary, which runs central Europe's
highest public debt at about 80 percent of gross domestic
product, will not be able to use remaining funds in its 20
billion euro loan secured in 2008.
It is not under immediate financing pressure, but the deal
is a credibility anchor for foreign investors that helps to keep
funding costs under control.
In Poland, the central bank releases net inflation data at
1200 GMT but that is likely to have little market impact.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.324 25.332 +0.03% +3.93%
Polish zloty <EURPLN=> 4.121 4.131 +0.24% -0.41%
Hungarian forint <EURHUF=> 289.71 290.76 +0.36% -6.68%
Croatian kuna <EURHRK=> 7.213 7.208 -0.07% +1.33%
Romanian leu <EURRON=> 4.263 4.259 -0.09% -0.6%
Serbian dinar <EURRSD=> 104.9 104.78 -0.11% -8.6%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +3 basis points to 99bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +121bps over bmk*
10-yr T-bond CZ9YT=RR -3 basis points to +134bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +394bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +377bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +321bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +619bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +582bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +490bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 0931 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by John Stonestreet and Susan Fenton)
