Polish Yields Fall to Three-Month Low on Cyprus, Zloty Weakens

Yields on Polish government bonds fell to a three-month low as an unprecedented levy on bank deposits in Cyprus threatened to reignite Europe’s debt crisis by triggering a run for safer assets.

The yield on Poland’s two-year bonds fell five basis points, or 0.05 percentage point, to 3.17 percent at 1 p.m. in Warsaw, the lowest since Jan. 2 and seven basis points above a record low from Dec. 21. The zloty weakened 0.2 percent to 4.1559 against the euro, data compiled by Bloomberg show.

Cypriot President Nicos Anastasiades will ask lawmakers in Nicosia to back a plan to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in the island nation. The announcement of the plan to tax deposits sent yields on Germany’s two-year notes below zero for the first time in more than two months, while yields on Spanish and Italian bonds rose as investors sought haven assets amid concern the levy would spark a run on Cyprus’s banks.

Poland is still in the better basket, we are more closely correlated with the core markets rather than the periphery,” Bartlomiej Wit, chief fixed income and interest rate derivatives dealer at ING Bank Slaski SA (ING) in Warsaw, said by phone today.

Investors are awaiting the publication of Polish jobs, wage and core inflation data at 2 p.m. in Warsaw to check for signs that the economy is starting to bottom out.

Stagnation Scenario

It is more probable Poland’s economy will stagnate rather than rebound in the second half of 2013, in which case borrowing costs will need to be cut by further 50 basis points to 2.75 percent, Monetary Policy Member Andrzej Bratkowski told PAP newswire.

Poland’s economy should expand by at least 1.5 percent this year if leading indicators prove reliable and Germany avoids a contraction, Jan Krzysztof Bielecki, the chief economic adviser to Prime Minister Donald Tusk, said at a Bloomberg Editorial Board discussion on March 15.

Poland won’t seek a weaker currency to boost growth as the economy is set to benefit from the government’s investment program and easier access to credit, Deputy Finance Minister Janusz Cichon said in an interview on March 14.

The zloty is “quite stable” and its current exchange rate is “favorable” for the competitiveness of Polish exporters, Cichon said.

To contact the reporter on this story: Maciej Onoszko in Warsaw at monoszko@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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