* Gross borrowing falls as deficit narrows
* Net bond issuance CZK 61 bln lower vs 2010, T-bills up
* Door open to foreign issues
(Adds analyst, prices, foreign issuance plans)
By Jana Mlcochova and Robert Mueller
PRAGUE, Dec 2 (Reuters) - The Czech Republic's gross
borrowing need will drop by 32 billion crowns ($1.69 billion) to
220 billion next year and will keep falling in the following
years as the country narrows its budget deficit, the finance
ministry said on Thursday.
The ministry said in its 2011 financing strategy that it
planned to shorten the debt maturity profile to save on
servicing and would be flexible on foreign bond issues, which
would not exceed 40 percent of total needs.
The Czech Republic, with debt under 40 percent of gross
domestic product, is among Europe's less indebted countries and
has had no trouble in accessing market funding while several
periphery euro zone countries struggled.
"Investors valued the new government's commitment to
lowering the public budget deficit and they have demanded a
lower risk premium," Finance Minister Miroslav Kalousek said.
"Under the government's current fiscal policy we do not have
to worry we could get into Greece-style crisis in financing
state debt ... This is of course a call to make an even greater
effort, because it is clear that it brings results."
The government plans to narrow the overall public sector
deficit to 4.6 percent next year from this year's expected 5.1
percent and has a long-term plan of a balanced budget in 2016.
The 10-year bond <CZKIRS> yield dipped 4 basis points in the
not very liquid market after the financing target was announced,
narrowing the spread over Bunds to 99 basis points. Short-term
yields edged up, with the 2-year <CZ2YT=RR> up 2 basis points,
according to Reuters data.
SHORTER END TAPPED
The ministry said it planned gross issuance of 184 billion
in bonds next year, a midpoint of a 174-194 billion range.
It said this would include up to 10 billion crowns in retail
bonds.
It added it planned an 11-20 year benchmark-size eurobond
and was considering up to 30 billion crowns worth of borrowing
in other currencies.
"Net issuance of medium and long-term bonds will be 72
billion crowns and will thus be 61 billion lower than this
year," the ministry said.
On the other hand, the ministry said it would raise issuance
of short-term treasury bills, shortening the maturity profile of
the state debt.
It said the shorter maturity was allowed for by a drop in
refinancing risk and said its target was 5.25-6.25 years, from
this year's target of 5.5-7.0 years.
This was in line with the aim to save on servicing costs via
lower rates on shorter maturities, first revealed by Kalousek in
July. []
Analysts said the strategy was positive for long-term bonds
given the shortening of the maturity profile.
"When they roll part of it on the short end, there simply
will be fewer long bonds and that limits the room for growth in
asset swap spreads, which is very important, many people play
that," said Daniel Kozel, portfolio manager at Generali PPF
Asset Management.
"Especially in this tense atmosphere on the periphery it is
good for Czech bonds," he said.
The ministry said that it planned issuing bonds worth 40
billion crowns on the domestic market in the first quarter alone
[].
(Writing by Jan Lopatka; editing by Stephen Nisbet)
