* 2010 borrowing to rise, govt plans foreign issues
* Q1 issuance lower than dealers expected, market calm
(Adds analysts, background)
By Jason Hovet
PRAGUE, Dec 3 (Reuters) - The Czech government will borrow up
to 292 billion crowns ($17.07 billion) in bonds next year, which
would be more than ever before as the economic crisis boosted
the country's budget deficits to record levels.
The budget gap has more than tripled this year to above 6
percent of gross domestic product as the economy battles
recession, and the interim government has warned it will take
years and tough spending cuts to slash the deficit to the EU's 3
percent ceiling.
The Czech Republic, unlike other central and east European
EU member states like Hungary and Romania, has avoided the need
for foreign bailouts, but analysts say the fast-rising debt
cannot be sustained over the longer term.
The ministry said gross borrowing needs would grow to 280
billion crowns in 2010 from an expected 269.3 billion this year,
which itself was double the original plan set out a year ago.
The Finance Ministry said in its funding strategy on
Thursday that gross borrowing would gradually increase to 312.9
billion crowns in 2012, as the country's budget deficits
stagnate at high levels and debt costs and repayments rise.
Any budget cuts that could cut the borrowing needs in the
following years will be up to the next cabinet that will emerge
from election due in May next year.
The ministry plans to issue between 102.3 billion and 292.3
billion crowns worth of bonds on the domestic market next year,
and borrow up to 140 billion crowns on foreign markets.
Overall bond issuance will reach 242.3 billion to 292.3
billion.
"The plan shows that gross borrowing requirements remain
very high," said Anne-Francoise Bluher, a fixed income analyst
at Komercni Banka. "It is big supply we can expect from the
ministry in case there are no reforms after elections."
The interim leadership has pushed through a $4 billion
package of tax hikes and spending cuts that will cut 2010's
overall fiscal gap to 5.3 percent of economic output -- although
those legislative changes mostly expire by 2011 and the main
political parties have clashed over future reforms.
The ministry forecasts central budget deficits will jump
then above this year's expected gap of 179.3 billion crowns.
HEAVY SUPPLY
Czech bonds have been boosted in the latter half of the year
by renewed risk appetite and lower issuance of local currency
bonds after heavier sales in the first six months of 2009.
The yield on the 10-year bond <CZ1002471=> has fallen almost
2 percentage points to around 4 percent since mid-July.
Domestic banks have been the biggest buyers of state bonds,
especially in the first half of the year when asset swap spreads
were around 100 basis points higher on some bonds, but slipping
demand from them after spreads tightened may be a risk.
"The question is whether they (banks) are able to increase
their holdings at the same pace as issuance," Bluher said. "The
curve also needs to be relatively steep so that interest stays
high on longer bonds."
The ministry, in a separate release of its debt issuance
calendar on Thursday, said it would offer 42 billion crowns in
government bonds in the first quarter.
Local bonds were little moved after the release, despite
some dealer expectations that quarterly borrowing will need to
average more than 50 billion crowns to meet targets.
The ministry has diversified its financing, including with a
Swiss franc bond in October and euro-denominated bonds on local
markets. It also covered borrowing with the sale 1.5 billion
euros of 5-1/2 year bonds on foreign markets in April.
The ministry said it would issue a portion of domestic
retail bonds and also continue issuing some domestic
euro-denominated paper.
* For a TABLE with January auction details []
((prague.newsroom@thomsonreuters.com; Reuters Messaging:
jason.hovet.reuters.com@reuters.net; +420-224 190 474))
($1=17.12 Czech Crown)
