PRAGUE: Strong foreign demand drove the yield on Czech 10-year bonds to a record low at an auction on Wednesday as investors sought alternatives to negative-yielding debt in western Europe.
Demand at the auction of bonds maturing in 2017 and 2021 was also helped by planned tight bond supply in coming months and an official interest rate cut in June that may be followed by more reductions, dealers said.
The Finance Ministry sold 3 billion crowns ($145.24 million)of each paper, with investors bidding more than double that.
The yield on the 3.85 percent coupon 2021 bond fell to 2.316 percent from 3.109 percent seen at a sale a month ago, while on the variable rate 2017 paper it shrank to 15.3 basis points over the six-month interbank rate of 1.29 percent.
"One of the main reasons is limited issuance in the second half of this year," said Komercni Banka trader Frantisek Kanka.
"(Negative yields are) another reason why investors are leaving euro-denominated yields and trying to find some pickup and diversify the portfolio."
Germany sold 2-year paper with a negative yield for the first time earlier on Wednesday. Dealers said foreign demand was the main driver in the Czech auction.
The Czechs met the bulk of their borrowing target in the first half of the year and could begin pre-financing 2013 with bond auctions in the fourth quarter.
The 2021 bond was quoted with a yield of 2.333/220 percent on the secondary market after the auction, down 10 basis points on the day and 111 basis points above a German bund.
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