* Investors watching Romania court ruling on austerity
* Positive result mostly priced-in, surprise would hit leu
* Global risk trade still drives region
* Hungary cuts 12M bill auction, demand light at Czech sale
(Updates with T-bill sales)
By Jason Hovet
PRAGUE, June 24 (Reuters) - The leu eased from morning highs
with other emerging European currencies on Thursday, with
investors keeping a wary eye on a possible court ruling later in
the day over austerity measures considered key to continued aid.
Central European markets have been rattled recently by
growing worries over the region's ability to rein in budget
deficits, especially in IMF-aid recipients Romania and Hungary.
Debt yields have risen across the region since May, making
it difficult for Romania to sell its bonds and treasury bills.
On Thursday, Hungary sold 10 billion forints ($50.86
million) less than planned at a 12-month bill sale, and demand
was light at a Czech sale. [] []
Romania's government survived a parliamentary no-confidence
vote on June 15 over planned tough public sector pay cuts. The
constitutional court may decide later on Thursday whether the
austerity measures are legal, and investors have mostly priced
in a ruling in which the cuts are upheld. []
But the court has a history of overturning reform packages.
A court rejection of the cost-saving measures would further
postpone International Monetary Fund aid, increasing financing
risks. []
Romanian 5-year credit default swaps widened around 9 basis
points to a nearly two-week high of 380 bps on Thursday.
The leu <EURRON=> inched down a touch to 4.23 to the euro by
1032 GMT, sticking around its lowest levels this year.
"If the cuts pass then the leu's firming should be rather
modest, as the market has priced in that the measures will pass.
Should they be rejected, we will likely see sudden
depreciation," a Bucharest trader said.
WEAK DOLLAR GIVES LIMITED BOOST
The currency performed slight better than the Polish zloty
<EURPLN=> and Hungary's forint <EURHUF=>, which slipped 0.3
percent and 0.4 percent, respectively after gaining around half
a percent in early trade.
Hungarian bond yields rose, with the 3-year bond up 15 basis
points at 7.05 percent. Dealers cited pressure mainly coming
from worries over euro zone periphery countries' debt woes.
The Czech crown <EURCZK=> was little changed on the day at
25.684 to the euro. The unit eked out gains on Wednesday amid
poor risk appetite and has seen its weakening capped at 25.800.
Currencies were helped early by a weaker dollar after the
U.S. Federal Reserve said the economic recovery was faltering,
hurting the U.S. currency. But the outlook later weighed on
stock openings, knocking support for currencies. []
Budapest <> lost 1.1 percent and other exchanges fell up
to 1 percent. The Thomson Reuters Equity Emerging Markets Europe
Index <.TRXFLDEETU> reversed an early rise to fall 0.1 percent.
Hungary's new government hopes to cut next year's budget
deficit to levels agreed with lenders and will seek IMF/EU
backing for reforms, Deputy Prime Minister Tibor Navracsics said
late on Wednesday. []
The fiscal crisis and austerity measures have also led to
more cautious central bank policies, and have made many analysts
push back expectations for rate hikes in the stronger economies
like Poland and the Czech Republic.
The Czech central bank left its benchmark rate on hold at an
all-time low of 0.75 percent as expected and most analysts
expect the first hike in the first part of 2011. []
But Polish bond yields have risen to their highest level
this month on expectations of a rate hike later this year.
-------------------------MARKET SNAPSHOT----------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.684 25.695 +0.04% +2.47%
Polish zloty <EURPLN=> 4.093 4.08 -0.32% +0.27%
Hungarian forint <EURHUF=> 281.83 280.67 -0.41% -4.07%
Croatian kuna <EURHRK=> 7.191 7.191 0% +1.64%
Romanian leu <EURRON=> 4.23 4.228 -0.05% +0.17%
Serbian dinar <EURRSD=> 104.18 104.04 -0.13% -7.97%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 148bps over bmk*
7-yr T-bond CZ7YT=RR +8 basis points to +165bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +157bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +427bps over bmk*
5-yr T-bond PL5YT=RR +7 basis points to +396bps over bmk*
10-yr T-bond PL10YT=RR +6 basis points to +335bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +19 basis points to +637bps over bmk*
5-yr T-bond HU5YT=RR +13 basis points to +587bps over bmk*
10-yr T-bond HU10YT=RR +6 basis points to +503bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1229 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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emerging market news []
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Sonya Hepinstall)
