Czech Yields Drop to Record at Bond Auction on Brexit Woes

The Czech government sold bonds at record-low yields in an oversubscribed auction as Britain’s vote to leave the European Union boosted expectations that the country will extend its monetary stimulus beyond mid-2017.

The Finance Ministry placed 13 billion koruna ($532 million) of notes due in 2019, 2026 and 2030 on Wednesday, with bids totaling 17.7 billion koruna, according to central bank data. The average accepted rate on the shortest maturity slid to minus 0.05 percent from minus 0.02 percent at the previous offering in May, while the yield on the longest bond fell to 0.76 percent from 0.93 percent five months ago. The bid-to-cover ratio for the 2030 issue rose slightly to 2.09 from 2.04 in the previous sale.

Concerns that the U.K. vote will hurt economies around Europe is driving investors into the relative safety of Czech and other higher-rated sovereign debt. The so-called Brexit may prompt policy makers in Prague to keep their zero interest rates and a cap on koruna gains for longer, according to Jakub Seidler, the chief economist at the Czech unit of ING Groep NV.

“Brexit represents an anti-inflationary risk both for the EU and the Czech economy, driving bets on lower rates for longer,” Seidler said by e-mail after the auction results were published. “That’s boosting demand for Czech bonds.”

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