(Adds domestic issuance plans, quotes, background)
LONDON/PRAGUE, June 2 (Reuters) - The Czech Republic has set
guidance on a benchmark 10-year eurobond, returning to the
international debt market for the first time since 2005 as
domestic borrowing costs rise.
The government also revealed domestic third-quarter
borrowing plans, showing a reduced debt issuance in light of the
planned eurobond sale but still a stronger figure than some in
the market had expected.
The eurobond is set to be priced this week to yield
mid-swaps plus 25 to 30 basis points, an official at one of the
banks managing the sale said on Monday.
Deputy Finance Minister Eduard Janota said in May that a
planned government eurobond would have a maturity of between 10
and 20 years and would raise 1 billion euros ($1.55 billion).
The ministry said a eurobond issue would be hedged in order
to prevent upside pressure on the crown currency.
Barclays Capital and Deutsche Bank are managing the sale.
"An eventual strong success of the issue should boost Czech
government bonds, cutting their yields and spreads versus
European benchmarks," said Raiffeisenbank in a report. "Thus, we
still stick to our buy recommendation."
The Czech 10-year bond <CZ10YT=RR> traded to yield 5.14/08
percent bid on Monday, 72 basis points above the corresponding
Bund <DE10YT=RR> and with an asset swap spread of 37 basis
points, according to Reuters data.
Czech asset swap spreads have risen in the past months,
adding support to the ministry's plans to issue abroad.
Radek Jac, chief analyst at PPF Asset Management, said the
third quarter issuance -- a cut from 46 billion planned for the
second quarter -- reflected the eurobond, slower summer markets
as well as strong domestic issuance earlier this year.
"Yields have gone up a lot in the past weeks, so it is
logical they do not want to issue that much," he said, adding
that the ministry held a solid stock of bonds in its own
portfolio it may sell on the market, and it could also issue
another eurobond by the end of the year.
He said he expected domestic issuance may be even lower in
the third quarter, around 20 billion, and Komercni banka trader
Dalimil Vyskovsky expected just 15 billion.
The ministry has set a 165-185 billion crown full-year
medium and long-term borrowing target on both domestic and
foreign markets.
The Czechs have issued two eurobonds so far, a 10-year note
<CZ019495752=> due 2014 and a 15-year <CZ021515329=> note due
2020.
The Czech Republic is rated A1 by Moody's Investors Service,
A by Standard & Poor's and A+ by Fitch Ratings.
For a TABLE with Czech auction details, click on
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(Reporting by Richard Barley and Jan Lopatka; editing by
Malcolm Whittaker)
