RPT-Czechs eye debut 30-year bond, fuel market jitters

(Repeats story published late on Thursday)

By Marek Petrus

PRAGUE, Nov 2 (Reuters) - The Czech Republic will launch its first-ever 30-year bond this month to help pay an old state guarantee, becoming the first central European EU member country to offer a domestic issue with such a long maturity.

In lengthening the benchmark local currency yield curve, the Czechs will top regional peers, Poland and Slovakia, which have already raised 20-year debt domestically <PL20YT=RR><SK20YT=RR>.

The Czech finance ministry said on Thursday it wanted to raise eight billion crowns ($364 million) through the new 30-year issue, and also seven billion crowns by re-opening the 15-year bond <CZ15YT=RR>, the longest-dated paper issued so far.

The two auctions, newly scheduled for November and December, raised the ministry's target for bond issuance for the rest of the year to 43 billion crowns, fuelling renewed concerns about the rising supply of debt.

"Placing the extra volume into the long end of the curve less than two months before the year-end and in the situation of persisting political instability is risky," said Pavel Sobisek, chief economist at HVB Bank in Prague.

The Czechs have stepped up local currency issuance this year to fund a burgeoning fiscal gap, opting to refrain from foreign borrowing after issuing 30-year, Japanese-yen denominated bonds in January in a private-placement transaction.

The extra issuance stems from the government's decision to frontload a guarantee payment to the central bank to keep a lid on the 2007 budget deficit, nevertheless forecast to widen to 4 percent of gross domestic product.

'ONE AUCTION A WEEK'

The news of higher borrowing this year was not unexpected after the ministry last month projected an 18.8 billion crown hike in borrowing to meet unplanned payments before end-2006.

But investors have been uneasy about the domestic market's ability to absorb the new debt, amid no signs that a quick solution may be found to a five-month-old parliamentary deadlock, which has crippled policymaking in the prosperous country.

Long bonds fell in price, lifting their yields by more than five basis points <0#CZBMK=> and causing the curve to steepen.

The 15-year yield premium over the corresponding euro zone benchmark <EU15YT=RR> neared the year-to-date highs of about 30 basis points, still the lowest a central European government has to pay to fund its debt.

"The impact was bigger than I had expected. There will be one debt auction a week, which is quite substantial," said Dalimil Vyskovsky, debt trader at Komercni Banka in Prague.

"In any case, some insurers and pension funds will buy the 30-year bond into their books, so that is not crucial. What is key is that they added the 15-year one which is being normally quoted on the market," he added.

Pension funds are usually the main buyers of long-dated government bonds to hold sufficient assets on their books to cover the payments they will have to make in years to come.

Some West European governments, such as Britain, have already issued bonds with maturities of 50 years <GB50YT=RR>. ((Editing by David Christian-Edwards; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477)) ($1=21.98 Czech Crown)

Keywords: MARKETS CZECH BONDS