Czechs raise 2020 bond offer in strong demand

PRAGUE, Dec 6 (Reuters) - The Czech Republic raised the sale of the 3.75/20 <CZ15YT=RR> <CZ1001317=> government bond on Wednesday due to high demand sparked by attractive pricing of the paper versus asset swaps.

The government sold 7.24 billion crowns worth of the paper, above 5.95 billion originally earmarked for the first, competitive round of bidding.

The average yield was 3.906 percent, and maximum yield just 0.5 basis points higher.

Bid to cover ratio, or the amount of bids versus the volume of sold paper, was solid 2.

"The paper yields very well above swaps, some 15 basis points, maybe 13 given the final average price," said Dalimil Vyskovsky, a trader at Komercni Banka.

The auction followed successful offering of a debut 30-year paper <CZ30YT=RR> last week, which was raised to 13.1 billion from originally offered 8 billion.

Economic fundamentals have also been somewhat supportive for bonds. While public finances have deteriorated, inflation has been lower than expectations and the central bank is expected to lower its inflation forecast in its next update due in January.

The market has therefore been scaling back expectations of interest rates hikes due in the coming months, despite a growing negative spread of official rates versus the euro zone.

An extra 1.05 billion crowns worth of the 3.75/20 bonds were due to be offered in the second, non-competitive round later on Wednesday. ((Reporting by Jan Lopatka, editing by David Christian-Edwards; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474))

Keywords: CZECH BONDS/