Hungary's eurobonds hit by EU executive's recommendation to suspend funds for Budapest, forint rebounds



PRAGUE, Sept 19 (Reuters) - Hungary's euro-denominated bonds slipped to record lows on Monday after the European Union executive recommended suspending some 7.5 billion euros in funding, while the forint rebounded after weakening last week in anticipation of the move.

Hungary has been locked in rule of law disputes with the European Commission this year, which has put at risk its access to EU funds and weighed heavily on the forint.

The currency has lost about 8% so far this year, making it central Europe's worst performer by a long way. The forint hit near three-week lows last week on expectations of the European Commission's announcement, making market reaction more subdued on Monday.

On Sunday, the European Commission recommended suspending funds worth about 5% of Hungary's expected economic output in 2022 over corruption, the first such case under a new sanction meant to better protect the rule of law.

Hungary also still has time to negotiate a resolution and put reforms in place.

"Hungary still has a lot to do," ING economist Peter Virovacz said. "I am still expecting that Hungary will be able to avoid the sanctions."

The forint EURHUF= was up 0.7% at 401.4 per euro mid-morning on Monday, with volatility in the currency expected into November before deadlines on the EU fund decisions are due.

"I would expect in the coming days some improvement in EUR/HUF, but to see it below 400 we should see this debate closed for good," Virovacz said.

In bond markets, euro-denominated debt was under strain, with a 2028 bond losing some 0.6 cent to receive bids at 74.8 cent in the euro in early trade, Tradeweb data showed.

The Commission has highlighted systemic irregularities in Hungary's public procurement laws, insufficient safeguards against conflicts of interest, weaknesses in effective prosecution and shortcomings in other anti-graft measures.

Hungarian Development Minister Tibor Navracsics, in charge of negotiations with the EU, said Hungary would meet all 17 of its commitments made to the Commission to stave off the loss of any EU funding.

Elsewhere, other currencies in central Europe firmed, with the Czech crown EURCZK= and Polish zloty EURPLN= gaining 0.2% each. Stocks also head higher, although trading was thinner with London markets closed on Monday.

CEE

SNAPSHO AT

MARKETS T

1049

CET

CURRENC

IES

Latest Previou Daily

Change

s

bid

close

change in 2022 EURCZK Czech

<EURCZK 24.4750 24.5300 +0.22% +1.62% =

crown

=>

EURHUF Hungary <EURHUF 401.400 404.300 +0.72% -7.97% =

forint

=>

0

0

EURPLN Polish

<EURPLN 4.7130 4.7245 +0.24% -2.59% =

zloty

=>

EURRON Romanian <EURRON 4.9240 4.9210 -0.06% +0.49% =

leu

=>

EURHRK Croatian <EURHRK 7.5200 7.5225 +0.03% -0.03% =

kuna

=>

EURRSD Serbian <EURRSD 117.250 117.340 +0.08% +0.28% =

dinar

=>

0

0

Note:

calculated from

1800

daily

CET

change

Latest Previou Daily

Change

s

close

change in 2022 .PX

Prague

.PX

1219.80 1220.29 -0.04% #VALUE!

00

.BUX

Budapest .BUX

40247.8 40057.1 +0.48% -20.65%

8

8

.WIG20 Warsaw

<.WIG20 1513.90 1501.91 +0.80% -33.22%

>

.BETI Buchares .BETI 11723.1 11753.7 -0.26% -10.25%

t

7

1

.SBITO Ljubljan <.SBITO 1073.85 1072.49 +0.13% -14.47% P

a

P>

.CRBEX Zagreb

<.CRBEX 1976.63 1983.74 -0.36% -4.94%

>

.BELEX Belgrade <.BELEX 846.15 846.67 -0.06% +3.09% 15

15>

.SOFIX Sofia

<.SOFIX 603.49 603.74 -0.04% -5.06%

>

Yield

Yield

Spread Daily

(bid)

change vs Bund change

in

Czech

spread

Republic

CZ2YT=

2-year <CZ2YT= 5.9020 -0.2900 +436bp -29bps RR

RR>

s CZ5YT=

5-year <CZ5YT= 4.9550 -0.0680 +330bp

-7bps RR

RR>

s CZ10YT

<CZ10YT 4.6310 0.0060 +285bp

-1bps =RR

10-year =RR>

s

Poland

PL2YT=

2-year <PL2YT= 6.5830 -0.0020 +504bp

+0bps RR

RR>

s PL5YT=

5-year <PL5YT= 6.4940 -0.0020 +483bp

+0bps RR

RR>

s PL10YT

<PL10YT 6.1310 0.0060 +435bp

-1bps =RR

10-year =RR>

s

FORWARD

3x6

6x9

9x12

3M

interba

nk

Czech

<CZKFRA

7.21

7.10

6.75

7.24

Rep

><PRIBO

R=>

Hungary <HUFFRA

14.38

14.51

14.35

12.90

><BUBOR

=>

Poland

<PLNFRA

7.42

7.43

7.25

7.15

><WIBOR

=>

Note:

are for ask

FRA

prices

quotes

********************************************

******************


Reporting by Jason Hovet in Prague, Karin Strohecker in London, and Krisztina Than in Budapest, Editing by Raissa Kasolowsky

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