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Fixed Income: What to expect from CZGBs in 2021?

1/14/2021 9:54 AM

The state budget law for this year does not include the significant cut in personal income tax approved just before year-end. Therefore, in the coming months, the government will present a new proposal that will imply higher CZGB issuance. In our view, this year's public finance deficit will prove similar to last year’s, as will net CZGB issuance. Due to the high expected CZGB supply and heavy redemption calendar, ASW seasonality will be amplified in 1H. The deterioration in public finances keeps alive the risk of a rating outlook downgrade. In the middle of the year, we will find out whether the Czech Republic will again be included among the developed economies in the GBI index family, and if it is, this would likely mean a significant outflow from the bond market. Domestic banks will likely remain the main buyer of CZGBs, to the detriment of foreign investors.  We recommend selling the CZGB 2031 in ASW.

Autor: František Táborský
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