* Hungary sells more than expected at bill sale, yields down
* Debt agency shies away for now from bond issuance in Q2
* CEE debt market sentiment improved but fragile
By Sandor Peto
BUDAPEST, March 17 (Reuters) - Hungary sold more three-month
bills than planned on Tuesday as Central European debt markets
showed some signs of life, tracking a rebound in currencies and
equities in the past week.
Government debt markets across the EU's eastern wing have
been all but paralysed since September, as western financial
institutions stockpiled cash at home and shied away from
investments in global emerging markets.
Analysts say nerves remain around growth, financing and
whether interest rates are high enough in Hungary, Romania,
Poland and others, but the last week has shown signs of
improvement.
Romania on Monday sold $604 million worth of local
leu-denominated treasury bills, with a duration of six months,
as it bids to ride out concerns over its high current account
deficit that have prompted it to enter talks on IMF help.
Hungary's auction on Tuesday lifted the initially planned
issue amount for the first time in months, selling 50 billion
forints ($212.3 million) worth of three-month bills instead of
the planned 40 billion.
The yield on the bills dropped sharply, reflecting falls in
government bond yields, helped by a partial recovery of the
forint currency <EURHUF=D2> and a rollback in expectations for
interest rate hikes.
"You can see from yield levels (which fell in the past week)
that sentiment has improved," said one trader with an
international bank in Budapest.
IMPROVED
Global appetite for risk has improved in recent sessions,
allowing battered central European markets to regain a foothold
after a sell-off that forced Hungary to seek $25.1 billion in
IMF-led aid last year.
The forint has also been boosted by promises by the central
bank to use its full tool kit to support the currency, prompting
speculation it may have already been dipping into the market.
The region's currencies have all rebounded this month,
although they are still down by as much as 25 percent in some
cases from highs hit last July.
The Czechs also plan to test markets on Wednesday with a
first fixed-rate bond auction since October, with dealers saying
the Finance Ministry would need to accept higher yields to sell
its debt.
The premium the Czechs have to pay out to borrow is still
well below that in Hungary, but asset swap spreads on Czech
bonds are nearing highs, and yields have risen steadily in the
past months due to the rising cost of risk across the region.
Analysts say the countries are still at the mercy of market
sentiment and have not yet found a solution to the deeper
problem of finding funds in the credit crunch to finance the
growth they need to continue a long-term catchup with the west.
"The rebound in (CEE) financial markets... has been driven
by a general improvement in global risk appetite, rather than
macroeconomic fundamentals or a concerted policy response," said
Neil Shearing, analyst at Capital Economics in a note.
"In the absence of a coordinated and concerted policy
response (we favour a pan-regional IMF-led bailout fund),
there is a clear risk that this will trigger a further bout of
indiscriminate selling across the region."
Foreigners have cut exposure to forint-denominated Hungarian
bonds by 885 billion forints since October<.HUBONDHOLD>.
Hungary's debt agency AKK said on Tuesday it plans
forint-denominated debt issues well below expiries in the second
quarter as it plans to auction government bonds only if market
sentiment improves.[]
"At the moment we see no signs that the sell-off continues
but still there may be investors who want to get out of
positions," one trader in Budapest said.
(Reporting by Sandor Peto; editing by Patrick Graham)
