UPDATE 1-Czechs sell long bond, demand poorest for 6 months

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By Marek Petrus

The Czech Republic sold 6.09 billion crowns ($285 million) worth of the government bond due in 2015 on Wednesday, but the market was disappointed to see the auction offer draw the poorest investor demand in half a year.

The EU 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.

The auction also took place against the backdrop of weakness in global emerging markets and a slide in the crown to two-week lows against the euro, which reversed part of the currency's 6 percent rally to record highs last year.

Total bids for the reopened 3.80 percent coupon bond 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 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.

The finance ministry raised the offer in the first, competitive auction round from the originally envisaged 5.95 billion, accepting all bids lodged at the maximum yield which was 2 basis points above the average.

But the second, non-competitive round failed, with primary debt dealers opting out of bidding for 1.05 billion crowns worth of paper offered at that stage.

The 3.80/15 bond yield inched up 1 basis point on the secondary market, quoted at 3.84/3.78 percent, or at a near record discount of about 15 basis points versus the euro zone counterpart .

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.

"We believe that the board as a whole is not yet about to cut rates, rather the risk is that they may delay rate hikes if the crown continues to strengthen," said Istvan Zsoldos, an economist at Goldman Sachs in London. ((Editing by Ian Jones; 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=21.37 Czech Crown)

Keywords: CZECH BONDS/

[PRAGUE/Reuters/Finance.cz]