* Hungary markets bullish ahead of budget details
* Ruling Fidesz party wins local elections as forecast
* Romania sells slightly fewer 6-mth bills, yield cap kept
(Updates prices, Romania tender, adds quotes)
By Marius Zaharia and Jason Hovet
BUCHAREST/PRAGUE, Oct 4 (Reuters) - The forint extended a
month-long rally on Monday, outpacing emerging European peers on
hopes that Hungary would push ahead with tough budget cuts in
2011.
The forint jumped to levels last seen in May, the month that
followed a sweeping parliamentary election victory for the
centre-right Fidesz party, which consolidated its hold on power
in local elections on Sunday. []
Investors returned to the currency in September when the
ruling party confirmed plans to cut the 2011 budget deficit to
below 3 percent of economic output -- pushing the forint to its
biggest monthly gain since April 2009.
Plans for the fiscal tightening should be released this
month, and analysts said a credible plan, which is more likely
following the elections, would keep investors on side.
Dealers said the forint was near technical levels that, if
broken, could propel it to April highs around 261 per euro.
The currency <EURHUF=> rose 0.2 percent to 272.5 by 1412
GMT. "Basically this is not a local story.... The election
result, however, is regarded as positive from the outside," a
Budapest currency dealer said.
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 the dust settles after the elections.
Hungary's five- and 10-year bond yields have dropped to
5-month lows and three-year yields to a 4-1/2 month low. Credit
default swaps eased to 308.2 basis points from 312.6 on Friday,
CMA DataVision data showed.
"Markets are eying a change in the government's populist
rhetoric...," Citi said in a note. "Our view is that only
structural expenditure cuts can ensure a sustainable rally."
The Polish zloty <EURPLN=> lost 0.4 percent after sharp
gains at the end of last week, while the Czech crown <EURCZK=>
and Romanian leu <EURRON=> dipped 0.2 percent.
ROMANIA TENDER
Romania sold 910 million lei ($291 million) in six-month
treasury bills on Monday at its self-imposed 7 percent yield
ceiling, near where March paper had bid at before the auction.
Analysts said large funding needs coming due next month may
force a change of tactics. Despite rising pressure on yields,
Bucharest has refused almost all bids above 7 percent since May,
which has led to smaller issuance and even failed tenders.
"Their strategy cannot be regarded as a healthy one," said
Ionut Dumitru, chief economist at Raiffeisen Bank in Bucharest.
Analysts expect Romania to miss a borrowing target again
this month if it sticks to its yield-cap strategy.
Markets are also watching political risk 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 cornerstone of the deal.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.48 24.437 -0.18% +7.51%
Polish zloty <EURPLN=> 3.952 3.936 -0.4% +3.85%
Hungarian forint <EURHUF=> 272.5 273.1 +0.22% -0.79%
Croatian kuna <EURHRK=> 7.289 7.3 +0.15% +0.28%
Romanian leu <EURRON=> 4.273 4.264 -0.21% -0.83%
Serbian dinar <EURRSD=> 105.927 106.31 +0.36% -9.48%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +13 basis points to 91bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +98bps over bmk*
10-yr T-bond CZ9YT=RR +5 basis points to +112bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +322bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +356bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +322bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +533bps over bmk*
5-yr T-bond HU5YT=RR +4 basis points to +488bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +434bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1613 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/Jason Hovet, editing by Hugh Lawson, John Stonestreet)
