* FinMin says 2010 borrowing plan still valid
* 4th quarter issuance mostly in line with market
* Analysts say bond rally still has legs
* 5-year bond yield hits new low at strong auction
(Updates with auction, more quotes, details)
By Jason Hovet
PRAGUE, Sept 1 (Reuters) - The Czech Finance Ministry plans
to offer 50 billion crowns ($2.55 billion) in state bonds before
the end of 2010, less than earlier expected and an amount
dealers said could be easily absorbed by the market.
The borrowing on local markets would still leave the
ministry short of its 2010 record high gross borrowing need, and
analysts said the ministry would likely sell euro-denominated
Eurobonds to meet the 280 billion crown borrowing target.
Czech bond yields have dropped to lifetime lows on the
longer end of the curve in the past month, tracking Western bond
markets as investors bet on a slower recovery while also being
backed by government austerity pledges.
Analysts and dealers said Czech bonds still had room to
gain, which was also evident at an auction of 5-year paper on
Wednesday at which investors bid for more than twice the offer
and the yield dropped nearly 41 basis points from a July 14
auction, hitting a lifetime low of 2.592 percent.
"The calendar is very positive. It shows the ministry
overcame its funding difficulties," Komercni Banka analyst
Anne-Francoise Bluher said.
"Just this 30 billion (in fourth quarter issuance),
especially if they still count on 280 billion, will not be
sufficient. So it suggests the ministry still plans to tap
international markets."
The ministry has issued 129 billion crowns in state bonds so
far this year, including Wednesday's auction, according to
Reuters calculations.
The gross borrowing figure includes raising funds for a
financing reserve, and borrowing includes 12.7 billion in loans
from the European Investment Bank.
BORROWING PLAN
The ministry's 2010 debt plan, set in December 2009,
envisaged a 163 billion crown deficit. A new centre-right
government plans for an overall fiscal deficit of 5.3 percent of
economic output this year before cutting it to 4.6 percent in
2011.
The economic downturn has cut state revenue, leading to
record borrowing in many countries, including neighbouring
Poland.
But the Czech Republic, like Poland, is seen better placed
for recovery, and has had no problems with placing debt.
Low interest rates in the country also keep yields the
lowest in central Europe. The yield spread of a benchmark 9-year
bond <CZ1002471=> over a similar-dated German bund <DE113538=>
is 113 basis points.
Finance Minister Miroslav Kalousek said in August a Eurobond
was still in the plan to help ease the burden on domestic
markets. A planned foreign issue was scrapped in April due to
the Greek crisis's negative impact on debt markets.
But there remain some doubts whether the ministry will want
a foreign issue as domestic borrowing is cheap.
"Price-wise it doesn't make much sense because it is cheaper
in crowns right now," a bond dealer said.
The yield on the 5-year bond <CZ1002737=> auctioned on
Wednesday dropped as much as 10 basis points on the secondary
market after the auction, and was quoted down a touch on the day
at 2.611 percent by mid-afternoon.
* For a TABLE on Wednesday's auction []
* For a TABLE on 4th quarter issuance []
(Reporting by Jason Hovet; editing by Stephen Nisbet)
