Czechs place 30-year bond tranche, demand weaker

...Wednesday's auction which drew weaker investor demand than last year's debut sale of the same paper.

The notes , maturing December 2036, yielded 4.29 percent on average in the first, competitive round of a primary auction, up from 4.22 percent reached in the bond's inaugural offering in November last year.

The auction attracted bids worth 1.2 times the sold amount, down from the 1.8 times the accepted bids in the previous sale.

In that auction, demand from both domestic investors and foreign players building exposure to central Europe reached nearly treble the original 8 billion amount of paper on offer and prompted the finance ministry to increase the issue size.

Czech yields have been creeping higher on concerns over the market's capacity to digest the debt supply to finance a growing debt load.

"Demand seemed to be reasonably strong, considering it was 30-year paper," said Dalimil Vyskovsky, a debt trader at Komercni Banka. "The increasing amounts on the issuance calendar should fuel a widening of yield spreads versus the euro zone."

Wednesday's auction yield came in 15 basis points below the equivalent note issued by euro zone member Greece, rated at 'A1' by Moody's like the Czech Republic, a European Union member which aspires to euro adoption.

But the auction yield gave investors a premium of 23 basis points over the corresponding euro zone benchmark , after the gap between lower euro zone yields and higher Czech counterparts widened over the past month.

The finance ministry was offering a 7 billion crown tranche via the two-step auction on Wednesday.

An additional 1.05 billion crowns worth of paper was left for the second, non-competitive stage, where bonds are allotted to primary dealers at the average price set in the first round.

The long bond sale is part of the government's strategy to gradually shift debt issuance towards longer maturities to fund a fiscal gap, forecast to widen to 4 percent of gross domestic product this year from 3.5 percent in 2006.