Foreign investors shun Slovak bond auction

                                
 BRATISLAVA, Oct 6 (Reuters) - Slovakia sold 0.3 billion
crowns ($26.87 million) worth of 3-year, zero coupon state bonds
<SK010411209=> on Monday, and an absence of foreign investors
confirmed weak demand for Slovak paper amid the global financial
turmoil and euro adoption due in January.
                                
 The Debt and Liquidity Management Agency (ARDAL), which
handles sales of state securities for the finance ministry, said
total demand was 3.215 billion crowns [ID:nL6299416] with only
domestic banks bidding.
                                
 "There is an immense nervousness on European markets," said
VUB Bank dealer Stanislav Figlar. "Credit default swaps on some
banks have increased. Foreign banks accumulate cash and do not
invest in countries like Slovakia, Greece or Italy."
                                
 Non-resident investors have shown falling appetite for
Slovak bonds in the past months, mainly due to Slovakia's
upcoming euro zone entry, ARDAL said, but added it has expected
the trend to change after the single currency is adopted.
                                
 It said foreigners had shown interest in Slovak bonds prior
to the Slovak crown's fixing to the euro in July, making profit
on the currency's firming.
                                
 "The current period is quite unfavourable for financing and
re-financing (of the state debt)," Tomas Kapusta, ARDAL's debt
management Director told Reuters.
                                
 "There are several options (to deal with the current
situation) .. there is an option to issue treasury bills, which
have been missing on the market for a few years," said Kapusta.
                                
 Kapusta said the central bank's treasury bills should be
fully replaced by the end of the year, adding he expected the
country's bond market situation would not change in the months
to come.
                                
 In general there has been evidence of lower risk appetite
from foreign investors in emerging Europe as banks hoard cash
and watch balance sheets due to the global credit crisis.
                                
 Slovakia was in a comfortable fiscal position with a budget
surplus for the first nine months of 2008, but analysts said
welfare plans and global economic turmoil were longer-term
risks.
                                
 The finance ministry said the central state budget had a
surplus of 4.317 billion crowns for the period from January to
September, less than the 5.084 billion surplus in the first
eight months but a better result than the 615 million crowns
deficit in the first nine months of 2007 [ID:nL1333536].
                                
 Slovakia's secondary debt market is less liquid than the
bigger markets in its central European neighbours, and investors
mostly hold longer bonds to maturity.
For a TABLE with auction results, click on [ID:nL6299416]
                                
 (Reporting by Martin Santa; editing by Stephen Nisbet)