* Hungary sells bonds worth HUF 81.6 bln vs 50 bln offer
* Romania sells 594.4 lei in 3-yr bonds vs 950 mln plan
By Sandor Peto and Marius Zaharia
BUDAPEST, Oct 22 (Reuters) - Hungary lifted planned bond
sales on Thursday as investors remained hungry for exposure to
the region but they differentiated on the basis of country risk
as signalled by a cut in Romania's bond auction.
Central Europe's biggest states, shunned by investors as a
danger zone a year ago, have restored their ability to finance
themselves from the market and lifted bond sales in the past
months as liquidity surged in global markets and the region's
high yields attract inflows.
Hungary sold 81.6 billion forints ($459.6 million) worth of
bonds at auctions and top-up auctions, lifting its 50 billion
forint original offer. Yields fell and the curve became less
steep relative to auctions held two weeks ago.[]
The Czech Republic sold 6 billion crowns ($1.09 billion)
worth of 26-week bills []. Poland's state-owned BGK
bank on Wednesday sold altogether 1.8 billion zlotys ($643.8
million) worth of road bonds due in 2018 [].
All the auctions attracted healthy demand.
"(Bond) buying (from abroad) typically comes from U.S.
investors. Continental investors, the German, the French and
Austrian are cautious," one Budapest-based trader said. "The
Austrians are net capital withdrawers."
The auction successes came while emerging market assets
retreated on Thursday. []
Earlier this week the Czechs placed an un-flagged 500
million Swiss franc bond, Poland said it would offer $300-500
million worth of yen-denominated bonds in early November
[] and euro zone member Slovakia also had a strong
bond auction.[]
Meanwhile, Romania, which offers the highest yields in the
region, cut its three-year bond auction to 594.4 million lei
from 950 million lei.
Many investors wanted yields above 10 percent which market
watchers said is a ceiling for the finance ministry, while the
country's political turmoil cuts demand relative to other states
in the region.[]
COUNTRY RISK UNDER SCRUTINY
In yield levels, Hungary comes next after Romania in the
region. Both countries had to resort to International Monetary
Fund-led aid in the worst period of the global crisis, but
Hungary has been quicker to reduce reliance on the lifeline.
The yields on Hungarian bonds have been halved in the past
months relative to peaks in March as global risk appetite grew,
the government launched deep fiscal cuts and the central bank
cut interest rates by 250 basis points altogether since July.
Romania's central bank has also cut interest rates and
further monetary easing is seen in both countries, while traders
said the gap between the two country's yields remains justified.
"Hungary is investment grade, Romania isn't ... Hungary has
a liquid market, Romania has not, Hungary has short-term rates
at 7 percent, close to the key rate, Romania has short-term
rates at 10-12 percent, although its key rate stands at 8
percent," one Bucharest-based trader said.
"Also, Hungary has chances to cut its budget deficit, so
less supply, lower yields. For Romania it's a bit complicated
and if you add the political situation to this, the differences
are big."
Romania is in a political deadlock after the opposition
refused central banker Lucian Croitoru's bid to become prime
minister.
Hungarian traders said the rally in bond prices could
continue as supply would remain limited in the rest of the year,
even though there are plenty of risks down the road in global
markets and domestic fiscal policy.
"Trees do not grow into the sky, there is a limit for the
yield falls, and I think that we have already passed that limit,
but you can see, it just goes on and on," one trader said.
(Reporting by Sandor Peto in Budapest and Marius Zaharia in
Bucharest; editing by Stephen Nisbet)
