No doubt the focus is on attempts of Western Europe to address the Greek debt/deficit crisis. One knock on effect of the woes is that many suspect the bar to entry of future members has been raised.
While Greek, Portugal, Spain, Ireland and Irish bonds have extended yesterday's rally, absorbing the new Portuguese supply today, the Czech Republic has not been so fortunate. It managed to sell only about half (2.9 bln CZK, or ~$155 mln) of the 15 -year bond it brought to market today.
Czech needs to sell a record CZK280 bln this year to finance its deficit, which was roughly 7% of GDP last year.
The Finance Ministry rejected bids it said because the yield demanded was too high.
With the bond market recovery in the weaker credits in the euro zone, it leave the Czech 10-year bond as the worst performer in Europe, with yields rising 54 bp year-to-date-compared with around 48 for Greece now.
The currency looks vulnerable, but given the pressures on the euro, the better way to express a negative CZK view may be through the dollar or, within the region, we like Poland more--making a long PLN short CZK position an attractive speculative position, while fixed income managers may want to consider raising hedge ratios on Czech exposures.
