The spread between the yields of Czech
and German bonds is currently negative except for the
longest maturities. The spread of 2Y bonds, for instance, is
approximately -8 bps. During the first half of the week,
Czech bond prices rose, mainly because of the release of the
issue calendar, and partly ignored events on developed
European markets. The second half of the week was as
usual; domestic events followed on the heels of European
developments. The most important event of the week was
the release of the issue calendar for medium and long-term
bonds for the second quarter of the year. The Ministry of
Finance will supply 5Y and 10Y bonds for CZK 29 bn
overall in three auctions, with one auction held every
month. An auction of the new 10Y benchmark for CZK 13
bn will take place in April while the existing 3.8/2009 bond
for CZK 8 bn will be supplied in May and the same amount
of this bond again in June. The amount planned for the
second quarter is higher than expected but the CZK 29 bn is
still not enough to satisfy the high market demand. The
Ministry plans to issue koruna bonds for CZK 110 bn +/-
10% this year.
A lot of new macroeconomic data will be released this
week. February’s inflation rate, which will be published on
Tuesday, will be the most important for the bond market.
We expect that year-on-year inflation slowed down again,
to 1.6%. On the same day the Czech National Bank will
release the minutes of February’s CNB Board meeting,
which will include information on how many Members
voted for and against the rate cut at this meeting. The
released information may encourage expectations of a rate
cut at the meeting scheduled for March 31. Our opinion is
that bond prices may, in the light of the newly released
information, continue to rise. A road-show for the planned
Eurobond issue will take place this week. According to one
of the managers of the issue, the overall amount may reach
EUR 1.5 bn if there is high demand for these securities.
(CSOB Investment research)