* Ruling Fidesz wins municipal elections as forecast
* Romania tenders 1 bln lei in six-month T-bills
(adds fixed income, detail, fresh quotes)
By Marius Zaharia
BUCHAREST, Oct 4 (Reuters) - Hungary's forint and government
bonds edged lower on Monday but held on to most of last week's
gains after the ruling Fidesz party scored a sweeping victory at
local elections, setting the scene for more budget cuts.
The forint gained some 1.3 percent last week as investors
bet that Fidesz, which won 22 of 23 cities on Sunday, would
toughen its fiscal stance after the poll.
Dealers expect the recent rally to lose steam as the euro
weakened against the dollar on Monday and the landslide victory
was fully priced in. Global sentiment will likely drive local
markets ahead of a 2011 budget plan expected to be delivered by
Oct. 15. []
"Markets are eying a change in the government's populist
rhetoric and more concrete measures in the coming weeks that
should ensure the sustainability of the committed below 3
percent of GDP deficit target in 2011," Citi said in a note.
"Our view is that only structural expenditure cuts can
ensure a sustainable rally."
The government spooked investors over the summer by
comparing Hungary's debt problems with those of Greece and by
halting talks with the International Monetary Fund and the
European Commission over a 20 billion euro bailout deal.
But financial markets have given Prime Minister Viktor Orban
a grace period until after the elections.
At 0935 GMT, the forint <EURHUF=> traded 0.2 percent down on
the day after hitting a fresh 4-month high of 272.76 against the
euro overnight.
Hungary's five-year bond yields remained bid at 5-month lows
hit last week on Monday, three-year yields were slightly back
from 4-month lows, while yields of 10-year paper hovered around
six-week lows.
"Locals are squaring their long positions whilst big
international names are receiving IRS and bidding bonds," Erste
Group said in a note.
Credit default swaps eased to 308.2 basis points from 312.6
on Friday, in line with peers, data from CMA DataVision showed.
Polish bonds were flat, with Erste saying turnover was
large, with foreign players on both sides. The finance ministry
is expected to give details of its bond supply at a Wednesday
tender, when it will offer new 2-year benchmark paper.
ROMANIA TENDER
Traders expect 1 billion lei in 6-month T-bills tender in
Romania on Monday to sell well at the finance ministry's
self-imposed yield cap of 7 percent after a recent softening in
short-term money market rates due to improved liquidity
conditions. <RONVIEW>
Paper maturing in March was bid at around 7 percent in the
secondary debt market.
Analysts expect Romania's debt managers to stick to their
ceiling throughout October, but say the ministry could find it
hard to keep a lid on yields during a financing peak next month.
[]
Markets are also watching political risks in Romania, with
the opposition set to file a no-confidence vote ahead of an IMF
mission to review an aid deal at the end of the month.
The Constitutional Court is expected to decide on Wednesday
on a pension reform bill that is a benchmark of the deal.
The Czech crown <EURCZK=> eased 0.1 percent, holding near a
23-month high of 24.318 hit on Friday after central bank minutes
showed one member voted for a rate hike, the first such vote in
more than 2 years. []
The Polish zloty <EURPLN=> dipped 0.5 percent, while the
Romanian leu <EURRON=> slipped 0.3 percent.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.448 24.437 -0.04% +7.65%
Polish zloty <EURPLN=> 3.956 3.936 -0.51% +3.74%
Hungarian forint <EURHUF=> 273.66 273.1 -0.2% -1.21%
Croatian kuna <EURHRK=> 7.284 7.3 +0.22% +0.35%
Romanian leu <EURRON=> 4.278 4.264 -0.33% -0.95%
Serbian dinar <EURRSD=> 106.157 106.31 +0.14% -9.68%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +12 basis points to 90bps over bmk*
7-yr T-bond CZ7YT=RR +5 basis points to +98bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +110bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +383bps over bmk*
5-yr T-bond PL5YT=RR +5 basis points to +358bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +322bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +5 basis points to +540bps over bmk*
5-yr T-bond HU5YT=RR +5 basis points to +499bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +440bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1135 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia,
editing by Hugh Lawson, John Stonestreet)
