* Demand reaches 3-times offer
* Czechs sell 58 pct more than offered
* Highest accepted yield spread widens
(Adds second round, quotes, background)
By Jason Hovet
PRAGUE, March 18 (Reuters) - The Czech Republic sold far
more 10-year bonds than planned at its first auction of fixed
rate paper since October, but at a much higher cost than
previous issues, underlining its urgent need for funds.
The Finance Ministry sold 12.61 billion crowns ($610.3
million) worth of debt at the inaugural auction of the bond
<CZ1002471=> on Wednesday, well above 8 billion crowns on offer.
The ministry had scrapped fixed rate auctions late last year
as the escalating global financial crisis froze trade in debt
markets across central Europe and domestic and international
funds sold off paper in a rush for cash.
Bids totalled 26.03 billion at Wednesday's auction. The
average yield rose to 5.619 percent, from 4.569 in its last
10-year issue in September.
The highest accepted yield rose to around 200 basis points
over swaps, dealers said. The bond carries a 5.0 percent coupon.
"The auction confirmed demand for Czech debt in local
currency does exist," said Pavel Sobisek, chief economist for
UniCredit Bank in Prague.
"The bad news is the state had to accept a higher yield,
which shows it is in urgent need to issue bonds. So it has
abandoned its previous practice of cutting bids."
The ministry halted a euro-denominated debt issue in
February due to rising credit default prices in a central
European region hit by worries over banks, growth and financing.
It said then the higher price being asked risked damaging
local markets.
The current Czech 10-year government bond, with a 4.6
percent coupon <CZ10YT=RR>, was quoted at 93.00/95.00 on
Wednesday, yielding 5.572/5.285 percent and has risen around 100
basis points this year.
Its asset swap spread has risen to 185.5 basis points from
105 at the start of the year, according to Reuters data.
Dealers said the high yields were attractive for banks,
especially as Czech lenders have few problems with liquidity.
However, they appear to be resisting putting those funds in
play in the real economy by lending them to firms or consumers,
and a top business leader said on Wednesday companies were
struggling to secure financing. []
The ministry does not release the structure of bond
auctions.
MOVING FORWARD
Central Europe's debt markets have been left half-dead since
seizing up last autumn and yields are up sharply. But a recent
rally in equity and currency markets brought back some life.
Hungary, which reached out for an IMF-EU aid package last
year, has since stayed away from new issues but last month
tested markets with small-scale sales. On Tuesday, its debt
agency sold more three-month bills than planned. []
In the more liquid Polish market, the recent uptick in
global risk appetite has also raised demand for longer-term
paper, increasing prospects for more sales of this kind.
But analysts say the region would still need to pay a higher
price, especially as euro zone states issue record amounts to
fund stimulus packages and before scenarios for a second-half
recovery in global markets can mean a rebound plays out.
"It is not really the problem of issuing right now, but more
of paying a price," said analyst Wolfgang Ernst at Raiffeisen in
Vienna.
Demand has remained strong at Czech auctions for a floating
rate bond it introduced last autumn, but the yield the state
pays to issue debt has steadily risen.
"The trend is still the same: cheapening government bonds
against swaps or against the interest rate swaps curve," said
Komercni Banka dealer Dalimil Vyskovsky.
The Czech public deficit is expected to treble this year to
4 percent of gross domestic product, lifted also by an
anti-crisis package unveiled last month by the government.
The ministry plans three more bond auctions by the end of
April: one new 3-year bond and two re-opened issues. It has also
started looking at plans to raise up to 140 billion crowns in
retail bond issues over several years.
For a TABLE from the auction double click on []
(Reporting by Jason Hovet; editing by Patrick Graham and Toby
Chopra)
