As expected, they opened weaker after overnight drop of US treasuries but they quickly change the mood and started to rise again. They went against the core markets and erased all morning losses by the end of the day. It’s obvious that Czech bonds decoupled from their German peers in these days.
The market positive atmosphere was supported by thin issuance calendar for the second quarter. The Finance Ministry will offer total of CZK 29 bn worth of 5 and 10-year bonds. There will be only one auction per month. The ministry will issue CZK 13 bn via a new 10-year benchmark (April’s tender) and twice CZK 8 bn via existing 5-year (3.8/2009) benchmark in May and June. The calendar is bigger than in current quarter (CZK 17 bn), but still quite small for today’s bullish market. There is no maturing treasury bond in the next quarter. The Ministry still expects to issue CZK-bonds worth CZK 110 bn +/- 10 % this year.
The central state budget showed deficit of CZK 6.1 bn in February, which brought year-to-date deficit to CZK 2.6 bn. That’s negligibly better than last year and more or less in line with planed full-year deficit of CZK 83.6 bn. There is no sign the government will exceed planed deficit now. Finally, the statistical office released ESA government deficit for the last year yesterday. It stood at 3.9 % of GDP, that’s better than originally expected (4.5 %). For adopting the euro it is necessary to squeeze deficit below 3% of GDP. Government expects deficit will stand at the end of the year at 4.7 %, but we bet on a better result.
Today positive mood may prevail again. Thus the market might follow core markets higher but resist any drop on these markets.
(CSOB Investment research)