Czech Five-Year Bond Yields Fall to Record Low as Economy Slows

Czech bond yields fell to a record low as a decline in the country’s retail sales increased bets that inflation will slow.

The government’s five-year bonds gained, cutting yields five basis points, or 0.05 percentage point, to 1.673 percent, according to generic prices compiled by Bloomberg. That’s the lowest since at least 1997, when Bloomberg began tracking the data. The koruna weakened less than 0.1 percent to 25.5 per euro by 2:45 p.m. in Prague.

Retail sales eased 2.1 percent from a year ago, compared with a 4.1 percent decline in April, the Prague-based Czech Statistics Office said in a statement on its website today. The central bank cut the benchmark interest rate by a quarter of a percentage point to a record low 0.5 percent last week after the inflation rate dropped to 3.2 percent in May, the slowest in five months and the economy shrank 0.8 percent in the first quarter from the previous three months.

“Weaker retail data and the economy remaining in recession have certainly” driven expectations for lower inflation, Daniel Lenz, Frankfurt-based chief emerging market strategist at DZ Bank AG, wrote in an e-mailed response to questions from Bloomberg today.

European stocks fell from a two-month high after Germany’s services industries unexpectedly shrank last month. The euro weakened amid speculation the European Central Bank will cut interest rates to a record low tomorrow.

“Czech rates are a ‘safe haven,’ so there is a natural inertia for bond yields to stay low when there’s so much uncertainty around, especially on the eurozone,” Esther Law, London-based strategist at Societe Generale SA, wrote in e-mailed comments today.

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