Czechs Load Up on Short-Term Debt as Negative Yields Evaporate

  • Investors buy 10.3 billion koruna of best-selling 2017 notes
  • Bonds carry about 30 basis-point premium over Germany's debt

The Czech government is running out of time to borrow money and get paid for it.

The Finance Ministry sold 10.3 billion koruna ($415 million) of notes due November 2017 on Wednesday at an average yield of minus 0.06 percent. That’s up from record minus 0.35 percent at its last auction in December and the highest rate since it began selling the notes in September. Two days ago, the ministry said it was offering the shorter-term debt, its best-selling maturity in the previous three months, rather than higher-yielding 2019 securities.

A global bond selloff has helped push Czech yields up from all-time lows as the government pushes ahead with its plan to raise as much as a record 100 billion koruna in the first quarter. Maturities of up to three years remain in negative territory as investors face even higher costs to park their cash in Germany. Some foreigners are also buying the debt on bets they’ll make a profit on koruna gains after the central bank scraps its policy of preventing the currency from appreciating past about 27 per euro.

“The switch to an even shorter maturity shows the ministry wants to ensure maximum demand so it can issue as much as possible at negative yields,” Marek Drimal, a senior economist at Komercni Banka AS in Prague, said before the sale. “The allure of the 2017 bond for foreigners is rising compared with Germany, and they have a prospect of koruna appreciation once the floor is removed.”

Investor orders for the 2017 security declined to 13.1 billion koruna this morning from 14.5 billion koruna on Dec. 9, data compiled by Bloomberg show. The ministry also sold 4 billion koruna of notes maturing in September 2025 and 4.1 billion koruna of November 2027 floating-rate securities.

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