* FX retreats, bond yields edge up on weaker global tone
* Fitch sees higher debt in region, bond sales watched
(Updates throughout)
By Marton Dunai and Jason Hovet
BUDAPEST/PRAGUE, Sept 21 (Reuters) - Central European
currencies retreated on Monday from last week's gains and bond
yields ticked up as investors slimmed holdings in riskier assets
and Fitch warned on the region's rising debt levels.
Equity losses weighed on the region, with Budapest <>
slipping 2 percent from a one-year high, while Warsaw's
blue-chip index <> outperformed with a more modest drop of
0.4 percent.
The Polish zloty <EURPLN=> slipped 0.8 percent on Monday,
bidding at 4.166 to the euro by 1417 GMT, while Hungary's forint
<EURHUF=> edged 0.3 percent down and Romania's leu <EURRON=> 0.1
percent lower.
The economic downturn in central Europe has cut government
revenue and raised welfare spending due to growing unemployment,
pushing government budget deficits well past the EU's 3 percent
ceiling needed for entering the euro zone.
Fitch said in a report that the region's economies could run
up bigger public debts as public finances remain shaky and
elections across the region raise risks. []
The Czech interim cabinet on Monday proposed tax hikes and
spending cuts intended to slash the budget deficit, warning it
may quit if the plan fails in parliament. []
The Czech crown <EURCZK=> shed about 0.2 percent on the day,
recouping some earlier losses by the late afternoon, while
yields on long-dated bonds ticked up several basis points with
worries over growing issuance hanging on the curve's long end.
"The story here is still the budget deficit talks and the
political rows around it," said a Prague dealer. "But more
important still looks to be external factors, such as the mood
on global stock markets."
The Polish 10-year bond yield hovered around 6.2 percent
after supply news for Wednesday's tender of bonds due in 2022.
The yield on the 10-year paper has jumped from around 6
percent this month on uneasiness over new issuance to cover the
spiralling government deficit. []
DEBT OUTLOOK
In Romania, after rejecting bids at the previous two
auctions, the Finance Ministry sold 650 million lei ($224
million) of one-year treasury bills on Monday, with the yield
edging just below 10 percent. []
Hungarian markets looked ahead to a government bond auction
<HUISSUE> on Thursday, where the offer has been raised in line
with last week's bullish market.
The region has benefitted from the rally in investors'
appetite for stocks and other riskier assets since March but
countries have begun to diverge more on differences in the local
interest rate outlook, politics and fiscal conditions.
Analysts have tipped the Polish unit, the region's best
performer with a 7 percent rise since June, to outperform peers
behind a better economic outlook, although the unit has been
weighed down by expectations of large company dividend payouts.
"A series of domestic macro-figures including the important
retail sales (scheduled for Wednesday) should bring more
positive news supporting the Polish recovery story," KBC said.
"Nevertheless if the zloty fails to appreciate both the
domestic and core markets supporting trends, it could create the
room for a more significant short-term (negative) correction."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.155 25.111 -0.17% +6.35%
Polish zloty <EURPLN=> 4.166 4.134 -0.77% -1.22%
Hungarian forint <EURHUF=> 271.9 271.00 -0.33% -3.07%
Croatian kuna <EURHRK=> 7.281 7.293 +0.16% +1.15%
Romanian leu <EURRON=> 4.267 4.262 -0.12% -5.92%
Serbian dinar <EURRSD=> 93.19 93.199 +0.01% -3.98%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -10 basis points to 190bps over bmk*
7-yr T-bond CZ7YT=RR -6 basis points to +171bps over bmk*
10-yr T-bond CZ10YT=RR +2 basis points to +170bps over bmk*
All data taken from Reuters at 1619 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Additional reporting by Krisztina Than; Editing by Patrick
Graham and Victoria main)
