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Polish Sale of 5-Year Bonds Lures Biggest Demand Since 2008, Yield Falls
Poland’s sale of five-year bonds today attracted the biggest demand since 2008 and borrowing costs fell to the lowest level in four months after the government pledged to cut the budget deficit.
The Finance Ministry issued a total of 3.6 billion zloty ($1.2 billion) of 5.5 percent debt maturing in April 2015 at primary and extra sales, it said in e-mailed statements. Investors placed orders for 7.5 billion zloty of bonds, the highest demand for that maturity since the auction on Sept. 3, 2008, according to data compiled by Bloomberg. The average yield fell to 5.209 percent, the lowest since the May 12 auction.
The government last week approved a draft budget that would cut the gap by a fifth next year, helping to keep public debt below 55 percent of gross domestic product, a level that would by law trigger mandatory spending cuts. As a result, gross borrowing needs will decline to 171.5 billion zloty in 2011 from 193.7 billion projected for this year, according to a document posted on the Finance Ministry’s website this week.
“The fact that the government is trying to trim the deficit where it can is giving investors some confidence,” said Rafal Benecki, an economist at ING Bank Slaski SA in Warsaw. “We are seeing a global hunt for yield and any fiscal risks in Poland are being mitigated by fast growth.”
Borrowing Costs
The government’s borrowing cost at today’s auction was at the low-end of the range predicted by three banks surveyed by Bloomberg. Societe Generale SA projected a yield of 5.23 percent to 5.24 percent, and Warsaw-based Bank Pekao SA expected a yield of 5.25 percent to 5.28 percent. The estimate at PKO Bank Polski SA, Poland’s largest lender, was between 5.20 percent and 5.25 percent.
“Lower budgetary needs undoubtedly adds to the positive sentiment for local bonds,” SocGen strategists, including Esther Law in London, wrote in an e-mailed note before today’s results were published.
Polish bonds rallied the most in five months in August, sending the yield on the country’s five-year debt down 22 basis points, or 0.22 percentage point, to 5.19 percent, according to an index compiled by Bloomberg. The cost to insure against a Polish default for five years in the credit-default swaps market decreased 17 basis points to 142 basis points this month through yesterday, according to data compiled by Bloomberg.
The yield on the note due 2015 fell 3 basis points to 5.23 percent at 3:25 p.m. in Warsaw. The zloty slipped 0.3 percent to 3.9529 against the euro, trimming gains from this year’s weakest level on May 7 to 7.5 percent.
Scope for Support
“We see scope for the zloty and bond market to continue to be supported as we anticipate positive developments in Poland on the fiscal front,” BNP Paribas SA emerging-market strategists in London wrote in an e-mailed note yesterday. The bank advised clients to buy 10-year bonds on Aug. 17. The yield fell to 5.52 percent yesterday from 5.76 percent on Aug. 16.
Economic growth in Poland, the only European Union country to avoid recession through the credit crisis, accelerated to 3.5 percent in the second quarter from 3 percent in the first three months of the year as rebounding demand encouraged companies to rebuild inventories, the government said last month.
Poland covered 77 percent of this year’s borrowing needs through the end of August and may limit bond supply in the fourth quarter, Piotr Marczak, the head of the Finance Ministry’s debt department, said on Aug. 31. Foreign investors increased holdings of Polish debt by a record 8 billion zloty to an all-time high of 113.5 billion zloty in June, Marczak said.
To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net
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