Only Berlin can borrow more cheaply than Prague |

Only Berlin can borrow more cheaply than Prague

Česká národní banka zveřejnila odhady vývoje deficitu.
Česká národní banka zveřejnila odhady vývoje deficitu.
ZDROJ: Pinkas Martin/Euro

Jaroslav Bukovský

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The Czech state is the second most trustworthy debtor in the European Union. That is the case at least if you examine the yields at which investors are willing to lend to bloc’s various governments. For the first time in history, the Czech Republic can procure a 10-year loan for less than one percent annually – 0.87 percent to be specific. Currently, of the 28 EU member states, only Germany – at a yield of 0.82 percent – can source money more cheaply.

Although, given the ultralow bank interest rates, there is a Europe-wide trend for cheaper money, there are, according to experts, purely Czech factors at play in this. The hunger of domestic banks for Czech bonds has still not been satisfied and foreign investors are at this time beginning to bet on the emergence of a stronger crown not too far down the road.

The difference between the levels of confidence shown in the Prague and Berlin governments by the financial markets has shrunk to a historically small measure. “The banks have a giant surplus of capital, which they cannot manage to place in [more typical] forms of loans, so nothing practically remains to them but to purchase government bonds at any price,” said J&T Bank analyst Petr Sklenář. While the demand for state bonds has increased massively the income available from them has simultaneously tumbled. “Foreign investors are also speculating on an expected strengthening of the Czech crown in 2016 when
the Czech National Bank is set to abandon its currency intervention,” added Tomáš Holinka, an economist at Moody's Analytics.

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