* Lower planned issuance sends investors scrambling
* Polish, Czech yields lower, seen supported for now
By Jason Hovet and Kuba Jaworowski
PRAGUE/WARSAW, Oct 7 (Reuters) - Demand soared to more than
twice the amount of bonds on offer at auctions in Poland and the
Czech Republic on Wednesday after slimmer local issuance plans
for the rest of 2009 spurred investors to pile into the debt.
With only handful of debt sales expected for the rest of the
year, investors have scrambled for Czech and Polish debt even as
expectations build that these governments will flood their
markets with more supply next year to cover ballooning fiscal
gaps.
Poland sold 4.5 billion zlotys of its OK0112 bonds due in
2012, attracting the highest demand this year at 11.9 billion
zlotys ($4.2 billion). It sold another 900 million zlotys in a
top-up round. The average yield stood at 5.115 percent.
[]
On the longer end of the bond curve, the Czech Republic sold
8.5 billion crowns ($488 million) worth of 15-year, 5.70 percent
coupon bonds <CZ1002547=>, with demand twice the offer in the
first, competitive round and double what it was at a June
auction. []
The average yield fell to 5.276 percent from 6.112 percent.
The two countries are economically sounder than their
central European peers, and their finance ministries have scaled
back borrowing plans for the final months of the year after more
heavy issues earlier.
The expected lower supply has given a modest boost to bond
prices, although strategists have warned that borrowing plans
next year to meet spiralling deficits will renew pressure on
markets, especially at the longer end the curve.
"Near-term lower issuance is certainly a main factor. And
secondly, local institutions still have cash to deploy," Societe
Generale strategist Esther Law said.
"We still have doubts over the sustainability of global
growth or the optimism being priced into the market. Given this
backdrop that could limit emerging market outperformance."
THE PLANS
Polish bonds have been knocked around the last month as
markets have digested news the central budget deficit would
double next year. That killed a rally and caused the market to
underperform a rise in peers like Hungary, whose debt has firmed
behind expectations of deep monetary policy easing moves.
The yield on the Polish bond fell six basis points to 5.09
percent after the auction.
"The two-year bonds are always attractive (for investors)
and, what is more, this is the only primary bond tender this
month so supply is limited," said Pawel Bialczynski, a fixed
income trader at BRE Bank.
Earlier the ministry said it would hold three bond and three
treasury bill tenders this quarter. It will also offer road
bonds at five auctions in the period. []
The Czech Finance Ministry will offer 17 billion crowns in
October and November, less than the 20 billion crowns-plus
offered in some months in the first half of the year.
The Czechs also held their first sale last month of local
bonds denominated in euros, giving the ministry another debt
tool to tackle next year's borrowing as the fiscal deficit
spirals past 5 percent of the economy.
The Czech 15-year bond was little changed on the secondary
market after the auction, quoted with a yield of 5.321/5.176
percent, down almost 15 basis points on the day.
Bonds have also found support in the past week from a dovish
stance by central bank Governor Zdenek Tuma and Vice-Governor
Miroslav Singer, who voted unsuccessfully to continue cutting
interest rates at the bank's last meeting. []
The bank's main rate stands at a record low of 1.25 percent,
and less than a month ago most analysts had expected the central
bank to end its easing cycle. Poland is also seen at the end of
its policy easing.
* For a TABLE with the Czech auction click on []
* For details on the Polish tender click on []
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(Writing by Jason Hovet; Editing by Ruth Pitchford)
