Safe-haven Austria basks in bond demand

VIENNA Tue Oct 2, 2012 8:20am EDT

VIENNA (Reuters) - Austria again topped up two bonds at record low rates at auctions on Tuesday, and the head of the country's debt management agency said spreads could narrow further versus benchmark German Bunds.

The average yield on the 2019 bond edged down to 1.326 percent - a spread of 44 basis points over Bunds, 70 bp less than at the end of June as Austria captures strong demand for highly-rated sovereigns during Europe's financial crisis.

Spreads "are still above the long-term average and of course investors see this as an interesting chance for spreads to narrow," Martha Oberndorfer, who leads the Austrian Federal Financing Agency, told Reuters in a telephone interview.

That means spreads "absolutely" have the chance to decline, she added, noting much Austrian economic data was at least as good if not better than the German equivalent.

She noted Austria was still able to place debt at negative interest rates out to maturities of two years.

More than 85 percent of Austria's 2012 issuance program had been filled after Tuesday's auctions that raised 1.2 billion euros ($1.6 billion) by topping up 2019 and 2044 bonds.

The 2019 bond was more than four times oversubscribed - which Oberndorfer called the highest rate in seven years - and the 2044 issue two times.

The average yield on the 2044 issue fell to 2.88 percent for a 54-point spread over Bunds.

Oberndorfer noted that debt issues so far this year had an average maturity of more than 15 years at rates below 2.5 percent, giving Austria a leg-up on financing costs for years.

Its overall debt portfolio now has an average maturity of 8.7 years.

Finance Minister Maria Fekter is counting on low debt servicing costs to help offset extra aid to ailing banks and let Austria keep its state deficit to 3 percent of gross domestic product in 2012 as planned.

Oberndorfer declined comment on a media report that Austria may just miss that goal this year, saying only that borrowing plans for this year were unchanged.

Vienna has said it expects to issue 20-24 billion euros worth of bonds in 2012 and boost total borrowing to 27-30 billion euros from around 21 billion last year.

Standard & Poor's stripped Austria of its AAA rating this year. Moody's last month affirmed Austria's top rating, but warned it might cut the rating due to the country's vulnerability to the euro zone debt crisis.

($1 = 0.7749 euros)

(Reporting by Michael Shields; Editing by Stephen Nisbet)

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