Czechs yields fall deeper into negative territory

By bne IntelliNews November 12, 2015

Yields on Czech two-year government bonds fell deeper into negative territory at an auction on November 11, prompting the issuer to raise the offer.

The finance ministry sold CZK11bn (€407mn) of the two-year zero coupon bonds, above the maximum initial target of CZK10bn, the central bank said on November 12. The raised offer came as the average yield fell to -0.332% from -0.323% at the previous auction held in October.

This was the third tranche of the isuue after a pilot in early September, when the average yield stood at -0.212%. Demand at the latest auction weakened as the value of bids fell to CZK11.4bn from CZK15.7bn submitted in October.

Also offered were bonds maturing in 2030, of which the ministry sold CZK2.2bn. The average yield fell to 0.992% from 1.700%.

The ministry also sold CZK2bn of a 0.45% coupon bond maturing on October 25, 2023. The issue attracted bids of CZK2.4bn and the average yield increased to 0.285% from 0.275% at the previous auction held last month.

The Czech government is enjoying negative funding costs on maturities of up to five years thanks to the abundant liquidity in the financial sector, which is triggered the central bank’s foreign-currency interventions. Analysts at KBC note there are also "bets on an ECB rate cut in December, which [will] push Czech yields lower, too".

On the other hand, some foreign investors are thought to be buying bonds on speculation the koruna will appreciate once the Czech National Bank (CNB) removes its cap on the currency. The koruna has been trading just above the CNB’s commitment level of around CZK27 per euro over the past few months.

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