The yield curve went down; the greatest variations occurred at the
short end of the yield curve. The situation on developed
European markets was completely different. Bond prices
fell there and thus the negative spread between the yields of
Czech and German bonds again widened. The spread is
already greater than 25 bps for bonds maturing in 2009. The
anticipation of a rate cut is having the greatest effect on the
Czech market. This anticipation was encouraged by the
minutes of February’s CNB Board meeting, the statement
from Board Member Řežábek and, last but not least, the
situation on the forex market.
The minutes of February’s CNB Board meeting indicated
that the Board almost changed rates at this meeting because
only a small majority was in favour of leaving rates
unchanged: four of the seven Members voted to leave rates
unchanged. Risks are currently accumulating on the antiinflationary
side, according to the minutes of the meeting.
There is no need to put off a rate change in order to confirm
this development. CNB Board Member Řežábek later said
that, according to him, there was room for a rate cut and the
Board might discuss a cut greater than a 25 bps at its
meeting in March.
Czech Eurobonds maturing in 2020 with a 4.125% coupon
were sold on Friday. The yield was set at 10 bps above 15Y
swaps. Although demand was high, the Ministry of Finance
decided not to issue Eurobonds for more than the planned
EUR 1.0 bn this year.
This week’s events include Tuesday’s release of February’s
producer price index; we expect that its rise continued to
slow down. The only auction in March will be held on
Wednesday; the Ministry of Finance will supply CZK 5 bn
of the SD 3.80/2009 bond for CZK 4 bn overall. Given the
current market situation, the auction will certainly be in
demand. Don’t forget, however, that the Ministry of
Finance will supply bonds of this maturity for an additional
CZK 16 bn in May and June. Bond prices should also rise
slightly this week. The market takes the expected 25 bps
rate cut as granted. We cannot rule out that rates will be cut
even more. However, the CNB Board meeting is not going
to be held until the last day of March.
(CSOB - Investment research)