RPT-Weak demand for Czech 30-yr debt auction

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By Marek Petrus

PRAGUE, March 14 (Reuters) - Investors showed weak demand for a Czech Republic sale of 30-year government debt on Wednesday, and analysts said the paper was too richly priced.

The finance ministry raised 6 billion crowns via the two-step auction re-opening the issue first sold in November last year and due December 2036, the longest maturity debt among central European governments.

It retained an additional 1 billion worth of paper to top up the 7 billion crown offering, as investor demand in the first, competitive auction round fell to 1.2 times the sold amount, down from the 1.8 times the accepted bids in the debut sale.

The notes yielded 4.29 percent on average, up from 4.22 percent reached in the inaugural offering.

Yields have been creeping higher on concerns about growing debt supply, but analysts said domestic real-money investors, primary buyers at Wednesday's auction, tend to be largely indifferent to short-term liquidity concerns.

"There was a lack of foreign bidders and domestic investors also bid less (than in November), which suggests natural demand for this long asset has been satisfied by the debut sale," said Jan Poulik, head of debt capital markets at CSOB bank in Prague.

"Domestic real money investors -- pension funds and particularly insurance companies -- do not seem to be excited about buying the asset with this risk profile and maturity at the current yield spreads," he added.

In the debut auction, demand from 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.

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.

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 more than doubled since the start of this year.

Official interest rates, at 2.50 percent the lowest in the European Union and a record 125 basis points below the European Central Bank equivalents, have held Czech debt yields spreads below euro zone levels on maturities of up to 10 years.

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

Keywords: CZECH BONDS/