PRAGUE Jan 11 Demand soared to a record high
for Czech zero coupon bonds due in 2018 at the country's first
auction of the year on Wednesday, spurred by the looming end to
the central bank's cap on the crown that has investors
positioning for a jump in the currency.
Investor bids jumped to 32.3 billion crowns ($1.26
billion), the highest ever for any bond and three times the
demand seen at the previous auction, in May last year. In
February 2016, investors had bid 31.5 billion for the same bond.
The average yield sank deeper into negative territory, at
-1.722 percent, at Wednesday's auction. The ministry sold 12.0
billion crowns of the paper.
Traders had expected a jump in demand as markets get ready
for the central bank to end a more than three-year-old
intervention regime keeping the crown weak. The bank's move
could come as early as April.
After data on Tuesday showing inflation returned to the
central bank's 2 percent target in December, crown forward rates
firmed to the highest since the launch of interventions, with
the 1-year rate at 26.50 to the euro.
"There was a big move the past few days on FX swap market,
people are eager to cover the crowns received into bonds,"
Komercni Banka fixed income trader Dalimil Vyskovsky said.
The finance ministry also auctioned a variable rate bond due
2020 and a 0.95 percent coupon bond due 2030, selling 0.96
billion and 4.0 billion crowns, respectively.
Czech yields are the lowest in central Europe, with yields
on papers up to six years below zero.
More analysts now expect the central bank to exit its crown
regime in the second quarter.
The bank has made a "hard" commitment not to end the policy
before then and said after its last meeting in December that it
still saw a likely exit in the middle of 2017.
Market players expect the crown to jump several percent once
the bank abandons the exchange rate cap that has kept the crown
on the weak side of 27 to the euro since 2013.
($1 = 25.7040 Czech crowns)
(Reporting by Jason Hovet; editing by Richard Lough)