Bloomberg News

Czech Yield at 6-Week High on Europe Risk Before 2021 Sale

October 04, 2011

(Updates yield in second paragraph, koruna in last.)

Oct. 4 (Bloomberg) -- Czech bond yields climbed to a six- week high before a sale of government debt tomorrow as the euro area’s sovereign-debt crisis threatens to curb growth across the continent and hurt demand for Czech exports.

The European Union member is offering 7 billion koruna ($373 million) more of its September 2021 notes, according to a prospectus on the central bank’s website. The yield on the secondary market climbed seven basis points to 3.24 percent yesterday, the highest since Aug. 24, before slipping to 3.21 percent today. The bond was last sold on May 11 at an average yield of 3.84 percent.

European stocks and commodities fell and the cost of insuring German bonds rose to a record as concern mounted about the euro area’s debt and economy. Fiscal-austerity measures abroad may curb Czech exports and hinder growth, the central bank said on Sept. 30.

“Investors are dumping riskier assets and Czech bonds are hit despite the recent credit-rating upgrade,” said Dalimil Vyskovsky, head of fixed-income trading at Komercni Banka AS in Prague. “Also, a hard landing for the Czech economy would be a major drag on tax revenue, threatening to widen the budget gap, which could in turn force the government to issue more bonds.”

Ten-year yields slumped to a record-low 2.92 percent four weeks ago after Standard & Poor’s on Aug. 24 lifted Czech debt two notches to AA-, citing changes to its rating criteria and the government’s low debt. Premier Petr Necas’s administration two weeks ago approved a 2012 draft budget that narrows the public-finance deficit to 3.5 percent of GDP from 4.2 percent this year. The bill is now before parliament.

‘Very Hard’

Czech manufacturing rose at the slowest pace in 21 months in September, an index of purchasing managers showed yesterday. The HSBC Czech Republic Manufacturing PMI fell to 52.3 from 53.4 in August, the bank said in a report. Exports account for almost 80 percent of Czech gross domestic product, with neighboring Germany being the biggest trading partner.

“The Czech Republic is strongly affected by problems in the EU, the main market for our goods,” David Sykora, head of currency trading at CSOB AS in Prague, said yesterday. “If demand declines, especially in Germany, Czech exporters’ sales will rapidly drop and this will hit the economy very hard.”

The koruna slid for a fifth day, weakening 0.1 percent to 24.867 per euro.

--Editors: James Kraus, Stephen Kirkland

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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