* Forint, stx, bonds hammered; cbank threatens intervention
* Other CEE assets gain back some morning losses
* Romania sells less T-bills than planned as expected
(Updates with Hungary cbank's intervention comments)
By Marius Zaharia
BUCHAREST, July 19 (Reuters) - Hungarian assets plunged on
Monday following the suspension of IMF/EU funding talks over the
weekend as markets shrugged off central bank warnings it could
intervene or raise interest rates.
The central bank left borrowing costs unchanged at 5.25
percent on Monday but said it would resume transfers of EU funds
in the currency market to fight forint volatility, adding that
higher interest rates may also be needed. []
The forint <EURHUF=> was untouched by the comments, and
traded 3.1 percent down on the day at 290.46 per euro at 1341
GMT, even weaker than levels seen before them.
"While these comments and actions might limit speculative
pressure against the forint, it doesn't provide much relief
against the external funding pressures ... or shore up the
government's credibility during the current impasse with the
IMF," said Koon Chow of Barclays Capital.
Hungarian bond yields rose 20-30 basis points across the
curve on Monday, while Budapest stocks <> fell 2.3 percent.
Yields on Hungary's Eurobond maturing June 2011
<HU013159386=RRPS> shot up to their highest since June 2009,
while five-year CDS spreads rose 58 basis points, according to
Markit.
Regional currencies tracked the forint's decline in
overnight trade, but later recovered.
Dealers say central European assets are decoupling from
Hungary's problems as Poland and the Czech Republic have sounder
fundamentals than Hungary and Romania, while the latter has
overcome significant hurdles to keep its own IMF deal on-track.
The Polish zloty <EURPLN=> was down 0.8 percent, trading at
4.14 per euro, significantly off overnight lows of 4.1540. The
Romanian leu <EURRON=> was a touch lower, while the Czech crown
<EURCZK=>, seen as a regional safe haven, was 0.4 percent
higher.
In Romania, the finance ministry stuck to its self-imposed
cut-off yield of 7 percent -- half of 2009 peaks -- and sold
roughly a fifth of what it planned at a one-year T-bill auction.
[]
Such a result was widely expected, since the ministry has
either rejected all bids or cut tenders across maturities since
early May, when investors began demanding higher yields in
response to worries over the success of the government's
austerity drive.
As an alternative way to seek funding, the ministry said on
Monday it plans to sell one-year euro-denominated paper on local
markets worth 400 million euros. []
In Poland, June industrial output data came in significantly
better than expected, highlighting the country's economic
outperformance in the region. []
MARKET PRESSURE
Economy Minister Gyorgy Matolcsy said he still expected to
reach an agreement with the International Monetary Fund and the
European Union as talks may resume in September, but markets
face uncertainty until then. []
Some economists said the forint may test levels close to 300
per euro before the government decides to resume negotiations,
but many say it is to early to assess how far the sell-off would
go, especially with the central bank on its toes.
Hungary faces no immediate pressure on state finances and
its 2010 position looks safe, but economists agree it needs to
keep the IMF deal on track as an external anchor of credibility.
An immediate risk from the suspension of IMF/EU talks was
depreciation against the Swiss franc, also seen in the zloty.
While currency depreciation against the euro may have helped
Hungary to tame a recession and Poland to avoid one, weakening
against the Swiss franc has caused big pain for these countries
as a large chunk of household loans taken when their economies
were booming are denominated in francs.
On Monday, the forint fell more than 3 percent against the
Swiss franc <CHFHUF=> from Friday to 211.6, while the zloty was
quoted 0.6 percent weaker at 3.0362 <CHFPLN=>.
Cheuvreux noted the forint was now around 38 percent weaker
than levels at which many mortgage loans were taken.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.34 25.432 +0.36% +3.86%
Polish zloty <EURPLN=> 4.14 4.106 -0.82% -0.87%
Hungarian forint <EURHUF=> 290.46 281.54 -3.07% -6.92%
Croatian kuna <EURHRK=> 7.213 7.225 +0.17% +1.33%
Romanian leu <EURRON=> 4.272 4.265 -0.16% -0.81%
Serbian dinar <EURRSD=> 104.84 104.61 -0.22% -8.55%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -14 basis points to 93bps over bmk*
7-yr T-bond CZ7YT=RR -7 basis points to +123bps over bmk*
10-yr T-bond CZ9YT=RR -9 basis points to +133bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -8 basis points to +387bps over bmk*
5-yr T-bond PL5YT=RR -3 basis points to +375bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +317bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +24 basis points to +617bps over bmk*
5-yr T-bond HU5YT=RR +19 basis points to +583bps over bmk*
10-yr T-bond HU10YT=RR +13 basis points to +489bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1441 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 Susan Fenton)
