Zloty to Forint Advance in Emerging Europe on Ukraine Cease-Fire

Poland’s zloty strengthened to a one-week high against the euro and bonds from Hungary to Turkey rallied with stocks as Ukrainian President Petro Poroshenko said he agreed on a cease-fire with Vladimir Putin.

The zloty advanced 0.3 percent to 4.1983 per euro by 6:11 p.m. in Warsaw, after reaching 4.1829. Hungary’s forint rebounded from a one-month low and the yield on the country’s 10-year bond fell seven basis points to 4.52 percent. The rate on Turkey’s security slid 14 basis points to 9.06 percent. Benchmark equity gauges in Warsaw and Budapest advanced more than 1.5 percent.

Poroshenko said he and Russia’s president agreed on the steps toward peace and a “cease-fire regime.” Putin called for an end to the rebels’ offensive in Ukraine’s easternmost regions and urged the withdrawal of the Ukrainian military from residential areas as part of a seven-point proposal. Investor sentiment toward east European assets has soured in past months as tension fueled by the Russia-Ukraine crisis affected regional trade flows and is taking a toll on economic growth.

“This is very good news as it reduces geopolitical risk for all classes of Polish assets, although to get a full picture we need the dust to settle,” Artur Iwanski, the head of equity research at PKO Bank Polski SA’s brokerage, said by phone. “The attention of investors can now turn to Poland’s macroeconomic situation.”

The forint rose 0.6 percent to 313.67 against the euro and the Czech koruna advanced 0.2 percent. East European bonds have handed investors a 0.4 percent loss this quarter, the only decline among six regions in the Bloomberg USD Emerging Market Sovereign Bond Index (BEMS), which has returned 0.8 percent since June.

Stocks Rally

Poland’s WIG30 stock index rose 1.9 percent with Ukraine’s Kernel Holding SA jumping 5.8 percent, the most since June, and LPP SA, a Polish retailer with operations in Russia, rising 6.1 percent to a six-month high.

Hungary’s BUX index climbed 2.5 percent, led by a 4.5 percent gain in OTP Bank Nyrt., the nation’s largest lender.

Czech bonds, which have emerging Europe’s highest credit ratings along with euro member Estonia, fell with German and U.S. debt as investors bought higher-yielding assets. The yield on Czech 10-year government notes climbed two basis points to 1.27 percent, trading 31 basis points above bunds and 116 basis points below Treasuries, data compiled by Bloomberg shows.

“If the situation in Ukraine calms down, this would be good news for the European economy,” Dalimil Vyskovsky, chief bond trader at Komercni Banka AS, the Prague-based unit of Societe Generale SA, said by phone today. “Hopes for de-escalation of the conflict are also pushing investors from higher-rated government bonds into riskier assets.”

To contact the reporters on this story: Maciej Onoszko in Warsaw at monoszko@bloomberg.net; Piotr Bujnicki in Warsaw at pbujnicki@bloomberg.net

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

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