Polish bonds and stocks headed for the biggest weekly loss in 11 after Prime Minister Donald Tusk’s cabinet proposed to exclude pension funds from the local government bond market to curb public debt.
Yields on 10-year government bonds rose nine basis points, or 0.09 percentage point, to 4.95 percent, extending their surge this week to 51 basis points, the most since June 21. A fifth day of advances in yields took them to the highest level in almost a year. The WIG20 Index (WIG20) rose 1 percent to 2,224.92 at 12:31 p.m. in Warsaw, after slumping 4.6 percent yesterday and set for a 6.7 percent retreat this week, the worst five-day performance since June 21.
Poland will take over and cancel government debt held by privately-managed pension funds, which will also be banned from purchasing the securities, Tusk said Sept. 4. The government will not seize stocks held by the funds and workers’ future contributions will be voluntary, he said.
Changes to the pension system “seem to be negative” for the bond market and “potentially negative” for equities and the zloty, economists at PKO Bank Polski SA, the country’s largest lender, wrote in a note today.
The revamp “will increase the share of foreign investors holding local bonds,” leading to a “significant deterioration of liquidity on this market,” according to PKO.
The spike in yields and slump in stocks are the steepest since the week ended June 21, when Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank may taper its monthly purchases of assets later this year, sparking a global sell-off in assets.
The zloty gained less than 0.1 percent to 4.2968 per euro, after sliding 1 percent in the last three days.
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