The finance ministry borrowed CZK7.4bn through government bonds, according to figures of the CNB. This time, the finance ministry offered bonds with original maturity of 11 and 16 years. Demand was still solid, though less so than at auctions carried out in May. Even then, the average cover ratio reached 2.35, which was again above the usual. It prompted the finance ministry to once again borrow above its indicative ceiling for this auction, set at CZK7bn, though it exceeded it by only 5%.
Even then, borrowing costs decreased visibly, as the 11-year bond saw an 11bp m/m decline, while the 16-year one – a decline of 31bps m/m. Both bonds were last offered in May, so the decrease in borrowing costs is very much relevant. Indeed, the finance ministry didn’t borrow too much this time, which helped with keeping yields low.
After this auction, the finance ministry has met 64% of its borrowing ceiling for June, as well as 93% of the borrowing ceiling for Q2 2019 (still at CZK60bn). Since the beginning of the year, the finance ministry has borrowed CZK161.7bn in CZK-denominated securities (48.8% of gross financing needs), out of which CZK159.5bn was in government bonds. When EUR-denominated securities are added, total borrowing reaches CZK173.3bn (52.3% of borrowing needs). There are two more auctions this month, one next Wednesday (Jun 19), when the finance ministry will reopen its 2.5-year EUR-denominated bond, and one in two weeks (Jun 26), when the finance ministry will offer 16-year and 50-year bonds. Given the borrowing ceilings, we expect that the finance ministry will exceed monthly and quarterly borrowing ceilings comfortably.