Gov't to sell bonds to individuals

The Finance Ministry is preparing to sell the first batch of government bonds directly to individuals in early November, an investment the ministry is promoting as a way for households to invest, but some analysts say the bonds in the issue will not be attractive and are really an attempt by the government to raise money in the face of potential budget shortfalls.

The most recent auctions - including one in mid-September of a piece of the ministry's 2016 floating-rate bond and another in early September of bonds with maturity in 2024 - were much weaker than expected, which analysts say is a symptom of the eurozone debt crisis and greater risk aversion that could force the ministry to deal with either fewer bids or lower prices. So far, the ministry has managed to keep its yields low and prices high, making borrowing costs the lowest in the region.

The government is currently negotiating the 2012 budget and looking to cut the deficit to 3.5 percent of GDP, or to around 105 billion Kč ($5.8 billion) compared with the 135 billion Kč deficit approved for the 2011 budget, and is expected to release a midterm fiscal outlook that will scale back tax revenue expectations in 2013 and 2014.

"The government is not motivated [to sell bonds to individuals] by efforts to support households with further investment opportunities, but rather by the effort of finding new possibilities of more borrowing options," said Markéta Šichtařová of Next Finance.

The bonds, which all have a minimum deposit of 1,000 Kč, will have three options. The first will be a one-year bond with a 2 percent yield, the second a five-year bond with an average annual interest of 3.09 percent, and the third will also be five years, but with annual interest that will be reinvested in bonds and collected when the bond is mature.

The catch, Šichtařová said, is that bond holders will only be able to sell them during four periods per year set by the ministry.

"These days, we are very well aware that even governments can succumb to defaults - commonly known as bankruptcies," she said. "This applies in the case of every government, [including the Czech government]."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com