Demand strong at Czech 10-yr bond sale, shrugs off politics

                                
 PRAGUE, Sept 2 (Reuters) - Investors bid three times the
offer at the Czech Republic's 10-year bond auction on Wednesday,
with dealers saying strong local demand for assets trumped
worries over a possible postponement of October elections.
                                
 The Finance Ministry sold 5.34 billion crowns ($296.7
million) worth of the 5.00 percent coupon bonds due 2019
<CZ1002471=> in the first, competitive round of bidding.
                                
 Demand stayed steady from previous auctions at 12.9 billion,
well above the 4.25 billion the ministry had on offer, while the
average yield fell to 5.111 percent from 5.710 percent from a
July sale.
                                
 "I think it is the same story that local banks mainly are
buying," said one fixed income dealer, but adding foreign
interest looked low.
                                
 "But it seems (politics) isn't the story right now; it seems
that just people need the assets right now."
                                
 A constitutional court injunction on Tuesday threw doubt on
whether the country could hold early elections Oct 9-10 as
scheduled, leaving a political crisis as an interim government
tries to cut the 2010 budget deficit, which is seen spiralling
past 7 percent of GDP. [ID:nL1122221]
                                
 "The bond auction was still excellent and there was huge
demand," another dealer said. "The worse the budget and
political situation gets, it seems the better demand there is."
                                
 The yield on 10-year bond was steady after the auction,
quoted at 5.212/5.010 percent, a touch higher on the day.
                                
  The asset swap spread on the bond <CZ10YT=RR> has fallen to
its strongest since February at around 120 basis points, from
180 basis points seen on July 1, according to Reuters data.
                                
 The Czechs borrowed heavily in the first half, taking
advantage of investors' return to risk in a months-long rally
stoked most recently by improving economic outlooks, and has a
modest issuance calendar for September and October.
[ID:nL1643593]
                                
 The government has doubled its original gross borrowing
target to around 280 billion crowns this year due to the soaring
deficit, and some analysts have estimated 60 billion crowns in
bonds could be issued in the final four months this year.
                                
 Finance Minister Eduard Janota said last month 2010
borrowing needs could rise to 330 billion without budget cuts.
  *For a table on Wednesday's auction click on [ID:nPRA004731]
 (Reporting by Jason Hovet; Editing by Ron Askew and Andy Bruce)