* Zloty falls, crown flat, forint underperforms region
* Hungary bond yields jump 20-25 bps from Monday
* Hungary sells 3-month Tbills, avg yield rises
By Krisztina Than
BUDAPEST, Aug 31 (Reuters) - Hungary's forint led currency
losses in eastern Europe on Tuesday, hitting new lows against a
soaring Swiss franc and triggering concerns over Hungary's large
exposure to franc-denominated debt and its economic recovery.
Hungarian government bond yields jumped ahead of a 3-month
discount Treasury bill auction <HUISSUE><HUAUCTION01>, amid
worsening global market sentiment and the weakness of the forint
currency.
Hungary sold 60 billion forints worth of 3-month bills at
the auction, 10 billion more than its original offer but the
average yield rose to 5.47 percent from 5.38 a week ago.
"Yields are about 25 basis points higher from the middle of
the curve upwards...as global markets are weakening, and this
obviously impacts us as we have neither strong economic
fundamentals nor a supranational cushion of lenders," a fixed
income trader said shortly before the bill auction.
Hungary's talks with its lenders the IMF and the EU
collapsed last month and the government last week ruled out
signing a new financing deal with the Fund in the autumn.
Prime Minister Viktor Orban said on Monday that it was in
the country's interest to sign loan agreements with the IMF if
necessary but not to have economic policy agreements with the
Fund. []
World stocks fell on Tuesday as worries over the U.S.
economy triggered profit-taking, and eastern Europe's stock
markets also eased with Warsaw <> falling 1.3 percent by
0858 GMT and Czech stocks down 1 percent <>. Hungarian stocks
recouped some early losses <> but were down 0.3 percent.
"Euro/franc at new lows should negatively affect the
Hungarian markets due to mounting CHF loan exposure concerns and
lack of new external assistance for the time being," Unicredit
said in a daily note.
At 0904 GMT, the forint was trading at close to 222.50 per
Swiss franc, causing unease in hundreds of thousands of
Hungarian households holding Swiss franc mortgages as their
monthly loan repayments rise.
The Swiss franc, viewed as a safe haven at times of risk
aversion, rose to a record high against the euro on Tuesday and
also surged against the dollar.
David Nemeth, an analyst at ING, said the forint's fall
versus the franc could hit the economy, which is just climbing
out of recession, if this currency trend proves lasting.
"If this lasts for one or two weeks there won't be a big
problem, the question is how lasting this CHF/HUF trend will
be," Nemeth said.
"If it were to prevail for 3-6 months that could lead to a
significant slowdown in the economy as it curbs domestic demand
and also, banks' capital needs may increase in addition to the
bank tax they will have to pay."
Hungary's economy is one of the region's laggards and is
seen growing by only 0.9 percent this year according to the
central bank's forecast, much slower than nearby Poland.
The Polish zloty was also weaker on Tuesday on souring
global sentiment and falling stocks.
By 0900 GMT the forint <EURHUF=> eased 0.9 percent against
the euro and the zloty <EURPLN=> was down 0.5 percent. The crown
<EURCZK=> was flat while the leu <EURRON=> was down 0.3 percent.
"In light of the not-so-positive global sentiment, the zloty
started the day with weakening (above 4 against the euro). In
our view, EUR/PLN will, however, stay below the technical
resistance level of 4.025," Citibank analysts wrote in their
morning note.
External factors overshadowed better than expected GDP data
on Monday showing Poland's economy expanded 3.5 percent in the
second quarter, largely underpinned by domestic demand.
[]
Data in Hungary showed earlier on Tuesday that the volume of
investments in Hungary fell by 4.9 percent year-on-year in the
second quarter after a 6.4 percent decline in the first quarter,
signalling the continued underlying weakness of the economy.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.788 24.779 -0.04% +6.17%
Polish zloty <EURPLN=> 4.004 3.985 -0.47% +2.5%
Hungarian forint <EURHUF=> 287.18 284.65 -0.88% -5.86%
Croatian kuna <EURHRK=> 7.261 7.268 +0.1% +0.66%
Romanian leu <EURRON=> 4.25 4.237 -0.31% -0.3%
Serbian dinar <EURRSD=> 105.01 104.97 -0.04% -8.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +4 basis points to +105bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +116bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +105bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -1 basis points to +403bps over bmk*
5-yr T-bond PL5YT=RR -5 basis points to +392bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +330bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +19 basis points to +654bps over bmk*
5-yr T-bond HU5YT=RR +24 basis points to +623bps over bmk*
10-yr T-bond HU10YT=RR +30 basis points to +547bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1056 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(on an analysis on the impact of the stronger franc on
Hungary's economy please click on [])
(Reporting by Reuters bureaus, Writing by Krisztina Than;
Editing by John Stonestreet)
