The Czech yield curve flattened in a bearish way yesterday, as the short end of the
curve did not like the easing of the Czech koruna
. Some market pre-positioning
ahead today’s bond auction played a role too.
Interestingly, two CNB’s board members wrote an article to the Czech financial daily
Hospodarske noviny, where they argue that a reduction of the central bank inflation
target (from 3% to 2% starting from 2010) might not necessary lead to higher nominal
interest rates because inflation expectations have been already well anchored to a
low level. We basically agree with this opinion though we think that having a lower inflation target might eventually prompt more aggressive central bank reaction when inflation
is temporary higher.
Today the market completely focuses on the 15Y government benchmark auction.
Once again the 3.75%/2020 bond for CZK
7 bn, will be supplied in this week’s auction.
The latest long-term bond auction was not much in demand. Therefore subscribing
the entire amount will also likely be difficult this time.