* Czech longer-dated yields at fresh record lows
* Forint leads losses vs euro, hits new record low vs CHF
* Political instability weighs on leu
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Sept 7 (Reuters) - Czech longer-term debt
yields hit fresh record lows on Tuesday, helped by strong demand
for a Eurobond issue, while Hungary's forint hit a new all-time
low against the Swiss franc.
The Czech Republic sold 2 billion euros of an April 2021
Eurobond on Monday, twice lowering yield guidance thanks to
strong demand, and reducing pressure on local debt yields.
Central European bonds have enjoyed increased interest from
investors looking to park their cash into higher-yielding,
relatively stable emerging economies, while core yields traded
at record lows.
Czech bonds have outperformed, rallying for around two
months, and have also been helped by austerity measures
introduced by the new government, which won praise from ratings
agencies.
At 1418 GMT, the Czech nine-year yield <CZ9YT=RR> was bid at
3.164 percent, about 10 basis points lower on the day, after
hitting an all-time low of 3.158 percent.
"It is possible to expect that yields will continue to
decline even if they are at record lows," said Frantisek Kanka,
interest rate dealer at Komercni Banka.
"If the trend of the past weeks continues -- bad numbers
from the U.S., speculation on further decline in activity in the
fourth quarter, or concerns over deflation -- yields will be
falling."
Some investors will be looking to take advantage of the
rally, to sell nine-year Czech debt paper for Polish 10-year
bonds, betting that spreads between the two, now close to record
highs, will start narrowing, dealers said.
HUNGARY UNDERPERFORMS
The forint <EURHUF> led losses among central European
currencies on Tuesday, falling 1 percent against the euro and
hitting a new record low of 223.4 against the Swiss franc.
Markets have been increasingly worried about the suspension
of Hungary's talks with the IMF/EU earlier this year and about
the large chunk of Swiss franc-denominated debt held by
Hungarian households, which could hamper an already fragile
economic recovery.
Prime Minister Viktor Orban also told a conference that the
government was sticking to its stance. []
The forint's slide helped push bond yields up 7-10 basis
points. The Polish zloty <EURPLN=> was 0.3 percent lower, while
the Czech crown <EURCZK=> was flat.
Political tensions in Romania weighed on the leu <EURRON=>,
which hit nine-week lows versus the euro, but market players
booked profits before the unit approached a psychological level
of 4.3 per euro, fearing the possibility of central bank
intervention.
The Romanian government faces a potential series of close
parliamentary votes on its austerity measures this month and
some analysts say that could even put its IMF deal in jeopardy.
In Poland, yields ticked lower, but may face upward pressure
as investors are positioning for a Wednesday tender. The finance
ministry will offer up to 3.0 billion zlotys in five-year papers
maturing in 2015.
In Romania, the finance ministry sold less than a third of
the planned amount at a six-month debt tender on Monday,
triggering speculation that it may have to ditch its 7 percent
self-imposed yield cap soon. []
Romania plans to issue its first euro medium-term notes of a
three-year, 7 billion euro programme as early as October to
compensate for failed local debt tenders. The success of the
Czech sale is an encouraging sign.
"This essentially paves the way for more Eurobond issuance
out of the region, with Romania and Ukraine likely to face
strong demand too, but obviously at a higher yield," Cheuvreux
said in a note.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.683 24.68 -0.01% +6.62%
Polish zloty <EURPLN=> 3.943 3.93 -0.33% +4.08%
Hungarian forint <EURHUF=> 287.77 284.8 -1.03% -6.05%
Croatian kuna <EURHRK=> 7.28 7.297 +0.23% +0.4%
Romanian leu <EURRON=> 4.286 4.282 -0.09% -1.13%
Serbian dinar <EURRSD=> 105.46 105.29 -0.16% -9.08%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +13 basis points to 127bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +103bps over bmk*
10-yr T-bond CZ9YT=RR +6 basis points to +103bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +412bps over bmk*
5-yr T-bond PL5YT=RR +6 basis points to +405bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +328bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -3 basis points to +644bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +609bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +516bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1518 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz
and Marius Zaharia; Editing by Susan Fenton)
