Czechs Borrow at Record-Low Cost as Austerity Shields From Spain

Czech borrowing costs dropped to a record low in a government bond sale today as cash reserves and budget-gap cuts insulate the country from Europe’s debt crisis.

The government sold 3.05 billion koruna ($161 million) of notes due in August 2018 at an average yield of 2.635 percent, data compiled by Bloomberg show. That is the lowest auction yield since the security was first issued in 2003 and compares with 2.711 percent at the last offering on March 7. The country also sold 3.35 billion koruna of 2023 floating-rate debt today.

The Finance Ministry raised less than the maximum target of 8 billion koruna today, the fourth consecutive reduced auction, after it met 50 percent of its 2012 funding needs in the first quarter, according to calculations by Marek Drimal, an economist at Komercni Banka AS (KOMB) in Prague. The curbed issuance boosts demand for Czech debt at a time when Spain is struggling to contain its deficit, worsening the region’s funding crisis, he said.

“We expect the ministry to continue to tap markets just lightly,” Drimal wrote today in an e-mail to Bloomberg News. “It is clear that the recent rise in risk aversion, stemming from reemerged fears concerning the euro-area periphery, has not yet affected investors’ perception of the Czech Republic.”

Premier Petr Necas today threatened to call early elections if lawmakers that splintered from the smallest ruling-coalition party don’t support the government. His plan to cut the fiscal deficit to within the European Union limit of 3 percent of gross domestic product next year helped prompt a two-step rating upgrade at Standard & Poor’s in August 2011, giving the country the highest ratings in emerging Europe, on par with euro-region Estonia.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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