MinFin activity is significantly lower year-on-year
27.02.2020Company: Amcham
Issuance activity: MinFin is scheduled to auction CZK5bn in a five-year bond and CZK3bn in a seven-year bond today. The shorter bond recorded solid demand (b/c 2.6) in its first auction two weeks ago. Since then the yield has decreased slightly, but in ASW terms the bond is cheaper. At the same time, the low supply of shorter maturities in recent years supports great market interest. On the other hand, the longer bond probably has the last auction ahead, which is also reflected in falling demand. Thus, MinFin has exhausted its current issues in this maturity segment. For March, MinFin plans four auctions including a new 11-year issue in a maximum volume of CZK15.5bn. Despite this rich offer of new bonds, MinFin activity is significantly lower compared with the first quarter of last year.
Market situation: The negative sentiment associated with the spread of coronavirus worldwide has also affected domestic rates through the fall in European and US rates. The IRS curve declined significantly over the past week, particularly at the long end (by 22bps). To a lesser extent, government bond yields also fell, which again follows interest rate swaps.
Rates outlook: Markets currently expect a 13bps cut at the six-month horizon and up to two cuts at the one-year horizon. This, in our opinion, is a strong market mispricing, which creates an opportunity to pay rates. However, the current panic around coronavirus may not be over and the rate slump may be more pronounced. For the time being, we recommend a wait-and-see approach until the situation becomes clear. On the other hand, we still believe a further rise in inflation in the coming months will not allow the central bank to cut rates, as currently expected by the market.
Author: František Táborský
Tags: Economics | Finance |
