Czech bonds drifted lower yesterday on back of rather unsuccessful auction. At the same time, closely watched German Bunds were mixed as short dated bonds recovered while long-dated slightly fell. The 4-year tender drew even lower demand than our pessimistic forecast. The finance ministry offered CZK 6 bn worth of papers and the demand in both round reached only CZK 6.09 bn. The ministry sold CZK 5.22 at an average yield of 3.35 % in the end. The 4-year paper is the least loved among investors now, and traders were not eager to opened long position ahead today’s ECB meeting. Although the bids in the auction were little changed of pre-tender market levels, bonds continue to fall after the auction. All in all, the yields added some 3 bps. Today each one may look at the ECB meeting. There is no domestic event on agenda. If president Trichet confirms its hawkish stance, the bonds may continue to slightly lose. Otherwise, the bonds might rebound.
(CSOB - Investment research)