* Demand soars; Czech bonds seen safe bet among CEE peers
* Investors anticipate tighter local supply to yr-end
* TABLE with auction results []
(Updates with top-up, analyst, CEE context)
By Jason Hovet
PRAGUE, Aug 18 (Reuters) - Investors bid for more than twice
the amount on offer at a Czech 15-year bond auction on
Wednesday, sending yields to a lifetime low as markets braced
for an expected reduction in the supply of longer-dated local
debt.
Backed by budget-cutting pledges from a new centre-right
government, Czech bond yields have hit fresh lows at the long
end of the curve in the past two months and are among the best
performers in central Europe.
Demand for the 2024 bond <CZ1002547=>, which the finance
ministry debuted in May 2009, rose from the previous auction.
It sold 8.3 billion crowns ($431 million) worth, keeping an
extra 2 billion on its books as the bid/cover ratio reached
2.36, up from 1.59 at the last sale in June. The average yield
fell to 3.867 percent from 4.582.
"There are two factors that squeezed the market... Plans to
move the duration of debt down, and probably the market expects
a eurobond auction of a bigger size," a Prague dealer said.
Finance Minister Miroslav Kalousek told Reuters in July he
wanted to issue more shorter-dated bonds to cut financing costs.
On Tuesday he said he would make a decision on remaining
2010 bond issues by the end of August and reiterated plans for a
eurobond, easing pressure on local issuance. []
The ministry had delayed an issue of up to 2 billion euros
in April, when the Greek debt crisis rattled markets.
"This eurobond issue should be announced pretty soon.
Conditions on the market are good... so why wait longer," said
Miroslav Plojhar, a JP Morgan economist.
TIME IS NOW
The Czechs have issued 123.1 billion crowns in state bonds
this year en route to record borrowing of 280 billion crowns.
The yield on the benchmark 2024 bond has fallen more than 60
basis points on the secondary market since June, and was quoted
down 7 basis points on the day at 3.846/762 percent at 1316 GMT.
The spread with equivalent German Bunds <DE113492=>, seen as
a safe haven, has narrowed to 124 basis points from 164 basis
points in that time, even as German yields hit record lows.
Czech bonds have been the region's top performers in the
past few months after the new government laid out fiscal
tightening plans that have been welcomed by ratings agencies.
Standard & Poor's raised its outlook for Czech debt to
positive on the back of the plans this month.
But with the Czech yields being the lowest in central
Europe, analysts say Polish or Hungarian debt looked more
attractive in the current flight to bonds by investors worried
about a stuttering recovery.
Hungarian bond auctions have been sold out in the past month
despite a government standoff with international lenders.
Polish bond yields have dropped 15 basis points since Friday
on forecasts of a later interest rate hike than thought before.
(Additional reporting by Jana Mlcochova; Editing by Susan
Fenton, John Stonestreet)
