* Demand at auction twice the offer
* Short-term bonds attract cash-rich local banks, funds
(Adds top-up round)
PRAGUE, Jan 27 (Reuters) - Investors bid heavily for a new
Czech three-year bond on Wednesday, with demand twice the offer
as the shorter maturity attracted local banks that had avoided a
longer-dated auction earlier this month.
The Czechs face record high borrowing in 2010 to finance a
budget deficit well above the 3 percent limit for European Union
members, and expect to tap international debt markets to ease
some of the burden on domestic bonds.
The Finance Ministry sold 7.3 billion crowns ($393.3
million) worth of debt at the inaugural auction of a 2.8 percent
coupon bond due in 2013 <CZ1002729=>, while the ministry
retained 1 billion crowns of the paper on its books. <CNB08>
Investor demand reached 16 billion crowns, twice the 8
billion on offer. The average yield was 2.909 percent.
"Demand was quite good because there has not been a
short-term (bond) auction in a long time," a Prague dealer said.
"The yield was as expected on the market."
The Czech's first auction of the year, a 10-year offer on
Jan 13, was met with thin demand. But dealers said the shorter
maturity of the new bond made it attractive for cash-rich local
banks and funds, though it was hard to gauge overall sentiment.
Yields on secondary markets are expected to stabilise in
coming months, with investors cautious before a May election.
Issuance fears pushed yields up at the start the year, which
was also partly a correction from a rally at the end of 2009
when borrowing was trimmed. The 10-year bond <CZ1002471=> yield
has risen 46 basis points to 4.46 percent since Jan 1.
But shorter-term debt has held some attraction, dealers
said, because banks can get better carry from funding bond
purchases with two-week money, held down by the central bank's
main repo rate which is at a record low 1 percent.
In contrast, 6-month interbank rates used for swaps have
jumped, pushing swap rates up.
A 3.7 percent coupon bond due in 2013 <CZ1000814=> has seen
its yield rise around 12 basis points this year. It was
unchanged after the auction, quoted at 2.83 percent. The new
three-year bond was quoted with a 2.995 percent yield.
The Czechs, like their central European neighbours, are
likely to tap international debt markets to ease local pressure
and diversify funding in the first part of the year, though no
plans have been announced yet.
Poland plans to issue $1 billion in dollar-denominated bonds
in the first quarter, while Hungary took a step toward coming
off IMF-led aid this week with the sale of $2 billion worth of
dollar-denominated debt. []
A Czech finance ministry official said earlier this month
the country could issue up to $2 billion in dollar-denominated
bonds, along with 1 billion euros in euro-denominated bonds.
[]
That may not be the total foreign offering. The ministry, in
this year's financing plans, could sell up to 140 billion crowns
in foreign bonds in 2010, half of expected gross borrowing.
* For a TABLE on Wednesday's auction, click on []
($1=18.56 Czech Crown)
(Reporting by Jason Hovet; Editing by Susan Fenton)
