* Czechs to auction 12 bln crowns in bonds in Oct
* Lower issuance seen supporting bond prices
(Adds dealer, analyst comments, background)
PRAGUE, Sept 1 (Reuters) - The Czech Finance Ministry will
offer 12 billion crowns ($677.2 million) worth of state bonds in
two auctions in October, slightly less than some players had
expected, supporting government paper prices.
The ministry said on Tuesday it would offer 7 billion
crowns ($395 million) of the 5.7 percent bond due 2024 and 5
billion crowns of its floating rate bond due 2012, which is also
due to be offered this month.
One fixed income dealer noted the planned issuance was about
the same as September and that he had expected a bigger amount.
But he added the ministry had sold more than planned in recent
sales.
The Czechs borrowed heavily in the first half of the year,
taking advantage of investors' return to risk in a months-long
rally stoked most recently by improving economic outlooks.
The Czech economy officially exited recession in the second
quarter but that has not been enough to contain a swelling
government fiscal gap seen topping 7 percent of gross domestic
product this year and next.
The government has more than doubled its original gross
borrowing target to around 280 billion crowns this year due to
the soaring deficit.
Anne-Francoise Bluher, an analyst with Komercni Banka,
estimated the ministry will issue 60 billion crowns in state
bonds in the final four months this year.
"The market situation is relatively favourable and they
pushed issuance ahead in the first half of the year," she said.
"Now they find it much easier to place issuance."
Dealers said bonds were little changed after the release.
Lower issuance over the summer holiday period has supported
markets in the past two months.
The asset swap spread on the Czech 10-year bond <CZ10YT=RR>,
to be auctioned on Wednesday, has fallen to its strongest since
February at 120 basis points, from 180 basis points seen on July
1, according to Reuters data.
The Finance Ministry has gradually cut its 2009 economic
outlook to a 4.3 percent contraction from an original assumption
of 4.8 percent growth as the country suffers from a drop in
foreign demand for its goods.
The Czech central budget gap is seen at 230 billion crowns
as an interim government struggles to push through spending cuts
before an October election.
Finance Minister Eduard Janota told Reuters last week that a
budget gap at the higher end would raise overall borrowing
needs, including refinancing maturing debt, to 330 billion
crowns next year. []
He said he could not rule out another eurobond issue this
year, and also didn't rule out a different foreign bond issue,
which could be a private placement, in another currency.
The Czechs sold 1.5 billion euros worth of 5-1/2 year bonds
on international markets at the end of April.
Apart from bonds, the ministry will also auction short-term
domestic treasury bills worth 12 billion crowns in October.
[]
(Reporting by Jason Hovet; Editing by Victoria Main)
