* Largest bond tranche since euro entry in January
* Debt agency says strong demand not surprising
* Debt agency wants lower yields in future auctions
(Recasts with comments by debt agency chief)
By Peter Laca
BRATISLAVA, Aug 24 (Reuters) - Slovakia sold the largest
domestic bond tranche since its euro zone entry in an auction
with surprisingly strong demand on Monday, but the debt agency
said it wanted to see cheaper borrowing in the rest of 2009.
The finance ministry's Debt and Liquidity Management Agency
sold 461 million euros in 3.5 percent, March 2013 bonds on
Monday, compared with only 112 million worth of the paper sold
in the previous reopening in June. [].
Debt agency head Daniel Bytcanek told Reuters Slovakia
planned to sell about as much in local bonds by the end of the
year as in Monday's auction. Actual borrowing will depend on
market conditions and the state budget deficit, he said.
Investors demand also rose, with the total bids reaching
793.5 million euros in the fourth reopening of the bond on
Monday, compared with 174.0 million in June. The bid/cover ratio
rose to 1.72, from June's 1.55.
"This size came as a bit of a surprise as the market was
looking for around 150 million euros to be sold today," said
David Schnautz, bond analyst at Commerzbank in Frankfurt.
"It is not only the biggest sale since the 2 billion euros
syndicated 4.375 percent Jan 2015 bond on May 25, it is also the
biggest reopening issue for Slovakia since their admission to
the euro zone."
Slovakia, which adopted the euro in January, has sold 2.859
billion euros in treasury bonds so far this year, including
Monday's auction.
The country also tapped financial markets with an
international bond worth 2 billion euros in May, priced at 170
basis points over mid-swaps.
Martin Koska, an ING Bank dealer in Bratislava, said he was
also surprised by strong demand in Monday's auction, saying the
market had expected around half of that volume.
"Regarding the yield, the state appeared to have got a fair
deal. The secondary market was a bit lower, but the (yield)
spread is roughly in line with the previous auction, or around
150 basis points over mid-swaps," Koska said.
Slovakia needs to increase its borrowing this year because
the recession is cutting budget revenues while the state is
sticking to the original budget spending plan.
The government expects tax revenue for the 2009 budget to
fall by 16 percent versus the original plan, and forecasts the
economy will contract by a real 6.2 percent this year.
ONLY FAVOURABLE BIDS
In addition to the bond sales, Slovakia also plans to issue
around 1.5 billion euros worth of shorter treasury bills during
the rest of the year, Bytcanek said.
"These amounts should cover the cash-flow needs by the end
of the year, but whether (the bond issues are worth) 500, 600,
or 400 million euros will depend on banks' price demands, and on
the final state budget deficit," he said in a phone interview.
But the agency chief said banks demanded still too high a
premium on Slovak debt.
"The accepted yields of up to 4 percent are totally at the
edge of acceptable levels," he said of Monday's result.
Yields demanded by banks should decline because spreads of
comparable countries in Europe have moved down, while Slovakia's
were still holding at levels which the agency considered to be
too high. "So, we will try and pick only favourable bids in the
auctions," Bytcanek said.
(Additional reporting by George Matlock in London; editing by
Stephen Nisbet)
