Czech bonds had their biggest two- day rally in more than seven years as the euro area’s financial crisis drove investors to emerging Europe’s highest-rated government debt.
The advance sent the 10-year koruna yield down 10 basis points, or 0.1 percentage point, to a record low 2.643 percent as of 6:15 p.m. in Prague, generic data compiled by Bloomberg show. That marks a 24 basis-point back-to-back retreat, the steepest since January 2005. The premium over benchmark German bunds fell to 139 basis points, the least in five months.
Austrian, Belgian, Dutch, French and German yields also sank to record lows today as investors ditched stocks on concern the global recovery is faltering despite near-zero funding costs in the U.S., the euro area and Japan. Czech debt is rated at the fifth-highest A1 by Moody’s Investors Service, two steps above Italy and five above Spain. Europe’s financial crisis is driving investors to Czech and Polish bonds because of their “safe- haven status,” Moody’s analyst Jaime Reusche said a month ago.
“The combination of a global policy of low interest rates and a fear of the euro zone’s breakup has brought new foreign investors to the Czech market,” analysts led by Jan Cermak at CSOB AS in Prague wrote in a report today. “The positive mood in the Czech bond market may hold for some time.”
The cost to insure Czech sovereign debt with credit-default swaps fell one basis point to 135, extending this year’s slump to 39 basis points. The contracts, which decline as perceptions of creditworthiness improve, traded below those for Aaa-rated Austria and France at 151 and 177 basis points, respectively.
Demand for Czech debt rose after the government met about 75 percent of its 2012 funding needs in the first six months, reducing the need for bond sales in the rest of the year. The country raised 182.9 billion koruna ($8.8 billion) of debt in January to June, compared with the 243.4 billion-koruna target for the whole year, the Finance Ministry said two days ago.
“Prospects of low second-half supply” and the country’s “good credit” are the main reason behind the bond rally, Dalimil Vyskovsky, chief fixed-income trader at Komercni Banka AS, said in an e-mail to clients today. “Looking at the credit spread at the long end, we still see room for further tightening.”
Czech stocks fell, with Erste Group Bank AG of Austria and Komercni Banka AS, the Czech unit of Societe Generale SA, leading the 14-member PX (PX) equity index down 1.1 percent. The koruna weakened 0.1 percent to 25.368 per euro after a 1.4 percent rally in the previous three sessions.
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