MinFin to sell 2043 floater

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK1.0bn of 2043 floater. In general, CZGBs floaters play a rather minor role, accounting for less than 10% of marketable state debt. MinFin continues its limited presence on the market after it has reduced last week’s auction. Overall, MinFin finds itself in a relatively comfortable position with CZK87.5bn issued in primary actions ytd, already exceeding the total indicative amount for Q1 set at CZK85.0bn. In addition, MinFin has sold an additional CZK9.7bn and EUR250.0mn of bonds in the secondary market. Czech public finances remain in good shape, with our estimate of a fiscal deficit of 2.3% of GDP this year and further consolidation enshrined in law. However, we expect the Czech national fiscal rules (which are stricter than the EU's Maastricht criteria) to be relaxed as the government proposes to exempt defense spending above 2% of GDP from the rules. This should be accompanied by an increase in defense spending by 0.2pp of GDP per year to reach 3% of GDP in 2030, according to the government’s proposal.

Market situation: On the Czech data front, the latest data was slightly inflationary compared to the February CNB forecast. This was mainly due to wage growth, which came in at 7.2% yoy in Q4 last year, exceeding market estimates and the CNB’s forecast (see here: https://bit.ly/Wages_4Q24_EN). February CPI inflation was confirmed at 2.7% yoy in the final release, with core staying at 2.5% yoy (see here: https://bit.ly/CPI_Feb25_EN). Deputy governor E. Zamrazilova said she saw room for perhaps two more 25bp rate cuts this year, while still seeing significant pro-inflationary risks. Another board member, J. Seidler, favors a pause at the March meeting as he sees mounting risks.

Rates outlook: Given the overall pro-inflationary balance of risk of the last CNB forecast, there is increasing probability of a pause at the March CNB meeting in our view. Further steps remain uncertain as the board keeps its hawkish stance and sees the neutral repo at 2.75-3.50%.  The subsequent rate path is thus likely to remain data dependent rather than focused on the medium-term outlook.

Author: Jaromír Gec