Issuance running at a constant pace

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK5.0bn of 2033 bonds, CZK4.0bn of 2035 bonds and CZK1.0bn of 2037 bonds. The issuance calendar for June suggests a total of CZK21.0bn of CZGBs to be supplied, which is the same amount as in May and close to the ytd monthly average (CZK21.4bn). However, MinFin usually issues more than indicated in the calendars (ytd nearly 50% more), having issued CZK144.5bn in primary actions ytd with additional CZK10.4bn and EUR250.0m in the secondary market. MinFin’s full-year gross CZGB issuance plan remains at CZK350-450bn.

Market situation: Last Friday, US president threatened to impose 50% tariffs on the EU starting June 1, before postponing the deadline to 9 July on Sunday. Today, long-term bond yields are declining globally as Japan signals an issuance cutback. In ASW terms, CZGB cheapened slightly since the last week.

Rates outlook: The CNB’s bank board continues to highlight inflationary risks. Nevertheless, the CNB staff forecast points to the repo rate declining to 3% as early as 2Q25. Given the board’s hawkish communication, we expect more gradual 25bp cuts at both the August and November meetings, bringing the repo rate to a terminal level of 3%. In our baseline scenario, we anticipate a mild recession in the Czech economy later this year due to US tariffs (details here: https://bit.ly/CEO_2Q25_EN). Along with solid inflows to local EM bonds and the normalization of risk appetite, we see potential for CZGB gains this year. Nevertheless, the risk of looser fiscal policy after the autumn general election could offset this to some extent.

Author: Jaromír Gec