Czech bond yields shot up on weaker CZK, ongoing poor sentiment in the euro bond market and surprising failure of an auction of the 9Y government paper. Hence, the yield curve steepened sharply in a bearish way, while a spread between long-dated Czech bond and German Bund yields continued to widen too. As concern the auction, overall poor sentiment led to very poor demand, hence the Ministry of Finance was able to sell just CZK 3.2 bn worth of 9Y bond or CZK 5.95 bn less than the original supply in the first round of bidding.
It is worth adding that the poor outcome of the auction had an immediate negative impact on the secondary markets as yields jumped by around 4 bps after the results of the auction was released. Since the Czech currency recovered slightly at the end of yesterday’s session there is a chance for some form of consolidation today. Unless the CZK and EMU bonds fall again into negative territory, there will be room for a downward shift of the yield curve.
ČSOB - Investment Research