* Markets shrug off weak or failed debt sales
* Hungary cuts bill tender but bond yields drop from highs
* Leu unfazed by reported departure of finance minister
(Updates throughout)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Sept 2 (Reuters) - Hungarian bonds shook off
a poor tender for one-year paper on Thursday and extended gains
as yields dropped from multi-week highs hit this week, while
emerging European currencies were range-bound.
Global investor appetite for risk outweighed concerns about
a slowing recovery in central Europe and governments' ability to
slash deficits in the coming years, with markets mostly
shrugging off local news.
Hungary cut a 12-month Treasury bill auction by more than a
third and was forced to pay higher yields to overcome renewed
jitters about whether the country needs IMF help and how the
forint's weakness against the Swiss franc will affect the
country's large foreign-currency loan stock. []
Talk that the central bank might raise interest rates in the
months ahead was also putting upward pressure on yields.
But bond yields on secondary markets continued to fall, with
the yield on 5-year paper down about 7 basis points on the day
and off six-week highs hit earlier in the week, which dealers
said was mostly a correction.
"There is no value in short-term paper now ... although we
don't think that the bank will hike rates this year unless the
markets blow up," a trader said after the lowered auction.
Hungary's central bank said on Wednesday that it may need to
hike interest rates if inflation risks persist or the country's
risk assessment deteriorates in a lasting way.
Markets are on tenterhooks over whether Hungary's new Fidesz
government will seek a new aid safety net from the European
Union and International Monetary Fund after Oct. 3 municipal
elections, or stick with a pledge to finance itself alone.
That stance, along with comments indicating Budapest may not
meet an earlier commitment to cut its budget deficit to below 3
percent of gross domestic product next year, has helped push the
forint currency to new lows against the franc.
Economy Ministry State Secretary Zoltan Csefalvay said on
Thursday that weakness against the franc would be temporary and
the central bank should not hike rates due to short-term
changes.
CURRENCIES LACKLUSTRE
The Hungarian forint <EURHUF=> and other currencies failed
to gain momentum in either direction, bidding near levels seen
in the previous session. The forint bid mostly flat at 284.4 to
the euro and was 1 percent up from a one-month low hit this
week.
The Romanian leu <EURRON=> dipped 0.2 percent to 4.267 per
euro, taking a failed five-year bond sale in its stride as the
finance ministry, as expected, stuck to a strategy of capping
yields at 7 percent. []
The government last sold five-year paper in June, when it
issued a fraction of the planned amount at an average yield of
6.97 percent, but most analysts say it may need to give up this
strategy in the autumn.
Dealers said a report that Finance Minister Sebastian
Vladescu had lost his post in a government reshuffle would not
have much impact. []
The departure of Vladescu had been expected by some
observers. Analysts said it was unlikely to threaten a 20
billion euro IMF-led bailout.
The Czech crown <EURCZK=> and Polish zloty <EURPLN=> were up
less than 0.1 percent on the day, failing to get a significant
lift from the euro's gains versus the dollar -- the euro is the
region's reference currency -- and investors stayed cautious
ahead of U.S. labour data due on Friday.
"There has been some unwinding on emerging market shorts," a
Stockholm-based dealer of CEE currencies said. "Overall, most
people are still positive on these currencies."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.694 24.697 +0.01% +6.58%
Polish zloty <EURPLN=> 3.97 3.967 -0.08% +3.38%
Hungarian forint <EURHUF=> 284.4 284.5 +0.04% -4.94%
Croatian kuna <EURHRK=> 7.286 7.273 -0.18% +0.32%
Romanian leu <EURRON=> 4.267 4.257 -0.23% -0.69%
Serbian dinar <EURRSD=> 105.45 105.42 -0.03% -9.08%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 118bps over bmk*
7-yr T-bond CZ7YT=RR -6 basis points to +102bps over bmk*
10-yr T-bond CZ9YT=RR -4 basis points to +98bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +408bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +392bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +319bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -11 basis points to +634bps over bmk*
5-yr T-bond HU5YT=RR -11 basis points to +593bps over bmk*
10-yr T-bond HU10YT=RR -15 basis points to +510bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1711 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz;
Editing by Hugh Lawson and Susan Fenton)
