Due to the coronavirus outbreak, the Czech government had to increase the budget deficit, which led to issuing government bonds worth almost 500 billion korunas (€18.7 billion).
However, the Czech government bonds have already been a hit among foreign investors since the beginning of the year as they have increased the volume of Czech debentures in their portfolios by 109 billion korunas (€4 billion).
Despite the record demand from abroad, mainly Czech banks have purchased the government bonds, and thus more than doubled their holdings of Czech government debentures. In comparison, the ratio of foreign investors dropped slightly, but not because of their lack of interest, but the greater willingness of Czech banks to pay extra for the privilege of owning Czech government bonds.
Individuals also showed an enormous interest in government bonds. In the last bond issuance, they purchased debentures worth 2.4 billion korunas (€87.79 million), while in the previous one, people bought about 2.1 billion korunas worth of government bonds (€78.56 million).
Due to the combination of technical factors and high demand, the zero limit on the government bond yield was even broke during the last issuance, allowing the Ministry of Finance to borrow money with a negative yield.
However, in the second half of the year, the situation on the government bond market should calm down. According to the recently published strategy of the Ministry of Finance, this year’s borrowing needs should amount to 730.6 billion korunas (€27.33 billion). The borrowed money will mainly cover the 500 billion korunas state budget deficit and repayments of previously issued government bonds.
Since the beginning of the year, the Ministry of Finance has secured about three-quarters of this year’s borrowing needs, and, for the rest of the year, the government bonds offer will be significantly lower as the Finance Ministry needs to borrow only 5.4 billion korunas per month. That is much less than investors would like.
Title image: The Czech National Bank in Prague