* Moody's cuts Hungary to Baa3, outlook negative
* Hungary forint, bonds fall, CDS jump 20 bps
* Other FX weaker, Hungarian impact limited on region
(Adds new comment and prices)
By Gergely Szakacs
BUDAPEST, Dec 6 (Reuters) - Hungary's forint and government
bonds fell on Monday after Moody's Investors Service cut the
country's credit rating to Baa3 with a negative outlook citing
concerns over long-term fiscal sustainability. []
While expected, the two-notch downgrade, which puts 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.
The cost of insuring Hungarian sovereign debt for 5 years
rose 20 basis points to 385 basis points. [] The
forint <EURHUF=D2> eased by 1.2 percent against the euro by 1047
GMT to 280.31 and Hungarian bond yields rose 5-10 basis points.
Yields on 10-year bonds rose 5 basis points to 8.10 percent.
"The next one (that may) downgrade to the brink of junk is
Fitch, and if I were a foreigner I would not buy Hungarian bonds
now as the market can be turned upside down very quickly," one
Budapest-based trader said. "Yields can rise further."
Fitch Ratings has said it will review its rating, currently
BBB with a negative outlook, before the end of the year.
Currency dealers said the forint underperformed but there
was no panic after the downgrade.
"All hell did not break loose," a Budapest-based dealer
said. "Nobody's throwing any tantrums, the move was expected, it
was priced in ... Moody's just caught up with the rest of the
rating agencies, really."
REACTION TO HUNGARY LIMITED
Other currencies in central Europe weakened less, with the
zloty <EURPLN=> down 0.5 percent at 4.001 against the euro.
"In my view, the zloty will remain within a range of
3.98-4.0 for now," one Warsaw-based dealer said.
Although investors are also scrutinising Poland's fiscal
policy, its debt and finances are in a better shape than
Hungary's and the Polish economy is expected to grow robustly
while Hungary's economic recovery remains sluggish.
Polish government bonds did not follow the fall of Hungarian
debt and 10-year bonds even firmed, with their yields dropping
to 5.91 percent from 5.94 percent.
A top aide to the prime minister said Poland's planned
pension reform will avoid the radical overhaul which has
unsettled investors in Hungary. []
The leu <EURRON=> and the crown <EURCZK=> both shed 0.1
percent, to 4.309 and 24.988, respectively.
"The crown <EURCZK=> stays around its fundamental level of
25.00 per euro. If the situation in the south of the euro zone
calms down further, I would expect a return to 24.7," Ceska
Sporitelna said in a note.
Data showed on Monday Czech wages were broadly stagnant in
the third quarter. []
Prime Minister Petr Necas said over the weekend costs of
keeping the crown currency were lower than those of adopting the
euro and "it will remain like that for a very long time."
Dealers in Bucharest said the market impact of the ratings
downgrade would likely remain confined to Hungary.
"It remains to be seen what the forint will do. It all
depends on the EU periphery. If Europe recovers then the forint
will overcome the downgrade," a currency trader said. "I don't
see contagion in the region following the downgrade."
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=> 24.988 24.975 -0.05% +5.32%
Polish zloty <EURPLN=> 4.001 3.982 -0.47% +2.57%
Hungarian forint <EURHUF=> 280.31 277.06 -1.16% -3.55%
Croatian kuna <EURHRK=> 7.374 7.374 0% -0.88%
Romanian leu <EURRON=> 4.309 4.303 -0.14% -1.66%
Serbian dinar <EURRSD=> 107.01 106.92 -0.08% -10.4%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +5 basis points to 87bps over bmk*
7-yr T-bond CZ7YT=RR +14 basis points to +96bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +88bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +4 basis points to +382bps over bmk*
5-yr T-bond PL5YT=RR +6 basis points to +361bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +308bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +15 basis points to +693bps over bmk*
5-yr T-bond HU5YT=RR +14 basis points to +627bps over bmk*
10-yr T-bond HU10YT=RR +8 basis points to +527bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1147 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, Writing by Gergely
Szakacs/Sandor Peto, Editing by Catherine Evans)
