Demand doubles offer at Czech 3-yr bond auction

                                
 PRAGUE, June 17 (Reuters) - Bids doubled the offered amount
at a sale of 3-year floating rate Czech government bonds on
Wednesday, with domestic investors going after shorter-dated
debt seen as less risky in the face of a growing budget deficit.
                                
 The Finance Ministry sold 5.02 billion crowns ($260.5
million) worth of the government bonds <CZ1002505=> in the
first, competitive round of bidding. Demand reached 13.97
billion crowns, more than double the 5.95 billion on offer. 
                                
 The third auction of the paper produced an average yield of
56.417 basis points above the six-month Prague interbank offered
rate (PRIBOR) <PRIBOR=> of 2.35 percent, down 32 basis points
from a May auction.
                                
 The ministry had in April set the semi-annual coupon at 3.69
percent, 100 basis points above the PRIBOR rate on April 15.
                                
 "It is quite an attractive option for domestic banks,
especially because they only have the option to place money in
repos or government bonds, and this bond yields some 140 basis
points above the current repo," said Komercni Banka trader
Dalimil Vyskovsky.
                                
 "Demand was still lower than I expected and the price was
fractionally lower."
                                
 The paper was quoted with a yield of 3.420/3.040 percent on
Wednesday, stable from earlier trade.
                                
 The Czech economy is seen contracting more than 2 percent
this year, which has hit employment and the government budget.
                                
 The overall public sector deficit is likely to triple this
year to 4.5 percent of gross domestic product before widening to
5.1 percent next year, according to ministry outlooks.
                                
 "There is still uncertainty and the outlook (for the
economy) is still unclear... so investors prefer shorter bonds,"
said Martin Lobotka, a Ceska Sporitelna analyst.
                                
 The central bank has shaved 225 basis points from the key
two-week repo rate since August in an effort to help the
export-reliant Czech economy weather falling demand.
                                
 Markets have started pricing in a central bank interest rate
cut before a June 25 policy meeting, with the 2-year interest
rate swap (IRS) yield falling 10 basis points in the past week.
                                
 The government has met a large part of its borrowing needs
for 2009, and Finance Minister Eduard Janota told Reuters last
month the state's 2010 borrowing needs would remain near this
year's record high levels of around 280 billion crowns.
                                
 Yields on shorter-term bonds have held roughly steady over
the past month, while the longer end has seen yields rise around
30 basis points but still below highs seen in March as sentiment
for emerging market assets holds up after a months-long rally.
 *For a TABLE with Wednesday's auction click on [ID:nPRA002621]
 (Reporting by Jason Hovet; editing by Patrick Graham)