* Forint stabilises, helped by stronger euro/dollar
* Correction seen short-lived as uncertainty looms
* Hungarian bonds stable, T-bill tender cut by HUF10 bln
(Adds Hungary debt tender, updates prices)
By Marius Zaharia
BUCHAREST, July 20 (Reuters) - The forint edged up on
Tuesday in what dealers said would be a short-lived correction
following recent heavy losses, but a dispute with international
lenders still weighed, prompting Hungary to cut a debt tender.
Hungary reduced its 3-month T-bill auction by 10 billion
forints and the average yield rose 19 basis points from a week
ago to 5.47 percent, highlighting concerns over the suspension
of talks with the IMF and the EU over the weekend.
[]
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 in coming weeks.
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 1011 GMT, the forint <EURHUF=> was up 0.2 percent from
Monday's close to 290.31 per euro, weaker than an intra-day high
of 288.58. The Polish zloty <EURPLN=> and the Czech crown
<EURCZK=> were virtually flat, while the Romanian leu <EURRON=>
was 0.3 percent lower.
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.
CUTTING AUCTIONS
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.
But even so, and even if some debt auctions fall short,
Hungary is not under immediate financing pressure. The
international aid deal is a credibility anchor for foreign
investors that helps to keep funding costs under control.
Cutting auctions is not unusual in central Europe, which is
in a far better debt position than many euro zone countries.
Romania, which faces upward pressure on funding costs due to
worries over the success of its austerity drive, has been
rejecting yields above 7 percent in recent months even if that
meant it sold less debt than planned or nothing at all.
Analysts say this is a risky play and governments could be
forced to pay even higher yields than those they are rejecting
now when financing pressure piles up.
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.
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=> 25.361 25.332 -0.11% +3.77%
Polish zloty <EURPLN=> 4.13 4.131 +0.02% -0.63%
Hungarian forint <EURHUF=> 290.31 290.76 +0.16% -6.88%
Croatian kuna <EURHRK=> 7.223 7.208 -0.21% +1.19%
Romanian leu <EURRON=> 4.271 4.259 -0.28% -0.79%
Serbian dinar <EURRSD=> 105 104.78 -0.21% -8.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +5 basis points to 101bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +120bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +140bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +395bps over bmk*
5-yr T-bond PL5YT=RR +5 basis points to +382bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +324bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +4 basis points to +622bps over bmk*
5-yr T-bond HU5YT=RR +5 basis points to +587bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +493bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1111 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
editing by Stephen Nisbet)
