Czechs up long bond sale but demand disappointing

...auction draw the poorest investor demand in half a year.

The government sold 6.09 billion crowns ($285 million) worth of the paper in the first, competitive round of bidding for the reopened issue maturing April 2015 , more than the originally envisaged 5.95 billion.

The European Union member country's bonds are yielding less than higher-rated euro zone equivalents across the entire curve, which market players said seemed to dampen investor appetite to participate in this year's inaugural auction.

"Overall, the result is relatively weak. Demand was low," said Dalimil Vyskovsky, debt trader at Komercni Banka.

Total bids reached only 1.24 times the amount sold, showing the poorest cover of any government bond sale by investors' bids since late June 2006.

The auction average yield was 3.80 percent. The finance ministry accepted all bids lodged at the maximum yield which was 2 basis points higher.

The 3.80/15 bond was little changed on the day on the secondary market after the auction, quoted at 3.83/3.78 percent, or at a record discount of more than 15 basis points versus the euro zone counterpart .

"The auction supplied the first larger liquidity since the negative spread against euro rates widened most. It looks like investors are saying: We do not want to invest at rates so much below euro equivalents and would rather wait for better entry levels," said Jan Poulik, head of capital markets at CSOB bank.

Additional 1.05 billion crowns worth of paper from the original 7 billion auction offer was left for the auction's top-up round later on Wednesday, where primary dealers may buy the note at the average yield.

The auction also took place against the backdrop of weakness in global emerging markets, and a slide in the Czech crown to two-week lows at 27.780 against the euro .

Central bank Vice-Governor Miroslav Singer's newspaper remarks that he could "seriously consider" cutting interest rates failed to draw investors into Czech bonds, despite confounding expectations that see a rate rise as the next move.

At 2.50 percent, the Czech central bank's policy rate is the lowest in the EU and 1 percentage point below the euro zone benchmark, as last year's surge in the crown currency raised the chances of inflation staying below the central bank's target.

Analysts and dealers said investors took Singer's comments with a grain of salt, expressing doubts that all members of the seven-strong policy board would share his view and be ready to actually help him push through a rate cut.

[PRAGUE/Reuters/Finance.cz]