Demand Surges for Czech Bonds Boasting Widest Premium in Decade

(Bloomberg) -- Bond investors bracing for Czech rate hikes are finding a silver lining in the latest bond selloff.

Primary dealers bid for more than 30 billion koruna ($1.37 billion) of Czech government bonds due in 2030 at an auction on Wednesday, the highest demand for a note with about 10 years in maturity since May. The rush reflects the juicy yield premium that the battered securities now offer over equivalent German bunds.

At 232 basis points, the spread is the widest since 2009, surpassing highs seen at the height of the global rout last year when the coronavirus pandemic hit markets. This time, it’s related to bets that central bank will raise rates much earlier than its peers in the euro area.

Even with one of the lowest debt loads in the European Union, the repricing in koruna government bonds has been swifter than peers, with the 10-year yield rising 72 basis points since the start of the year.

Czech 10-year notes offer a higher yield than similar Polish securities, upending the pecking order that’s held for years. The difference with lower-rated notes issued by Romania is at the narrowest on record.

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