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Czech Republic Reduces Local Bond Supply Next Quarter on Planned Eurobond
The Czech Republic will reduce sales of local-currency bonds in the last quarter to the lowest amount this year as the government plans to sell debt in euros abroad to help meet its record borrowing needs.
The European Union country will offer 30 billion koruna ($1.54 billion) of bonds, the Finance Ministry said today in a statement. This compares with a revised target for 50 billion koruna of notes in the third quarter and with 85.6 billion koruna of bonds sold in the first half of the year.
The government almost doubled the volume of local-currency debt to be sold in the third quarter from the previous three months after covering only 29 percent of its gross funding needs in the first half. The country will sell bonds in euros later this year, Finance Minister Miroslav Kalousek said last month. A planned foreign issue was delayed in April after concern about the Greek debt crisis drove up borrowing costs in Europe.
“The calendar suggests that the Finance Ministry overcame the funding difficulties,” Anne-Francoise Bluher, a bond analyst at Komercni Banka AS in Prague, wrote in response to e- mailed questions today. “According to my calculations, it counts on an issue on foreign markets, probably worth 1.5 billion euros.” Komercni is a unit of Societe Generale SA.
The ministry also said today it reduced its issuance plan for Treasury bills to 25 billion koruna in the last three months from a 75 billion-koruna target for this quarter. The country plans to borrow a record 280 billion koruna this year as it is recovering from its worst recession in two decades that hurt tax revenue and increased social spending.
“The Finance Ministry massively raised its funding during the third quarter via T-bill and T-bonds,” Bluher wrote in a report yesterday. This is likely to bring the coverage of the 2010 gross financing needs to an “impressive” 74 percent at the end of the third quarter, Bluher wrote.
‘Improved Significantly’
Czech bonds have rallied in the past two months, pushing the yield on the benchmark 2019 koruna note to a record low of 3.164 percent last week, after the government pledged to halve its fiscal deficit in three years and as concern eased about the European debt crisis. The yield on the 2019 bond was little changed today at 3.178 percent as of 3:30 p.m. in Prague.
Government borrowing costs declined to a record low at a sale of five-year koruna bonds today as investors bid for 2.5 times the amount offered. Auctions of 15-year and three-year notes in August were also more than twice oversubscribed and the average accepted yields fell to the lowest for the securities.
“The government’s reform plans suggest the largest issuance of bonds on the domestic and foreign markets will occur during this year and then issuance will dry up,” Bluher said yesterday. “This should reduce supply pressures on the market. Overall, we think the short- and longer-term outlook for Czech bonds has improved significantly.”
To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net
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