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Poland Faces Highest Yield in Seven Months at Auction

Dec. 1 (Bloomberg) -- Poland faces the highest borrowing costs in at least seven months at today’s bond auction as the Europe Union’s worsening debt crisis drives investors from the newest member states.

Poland will offer as much as 4 billion zloty ($1.28 billion) of notes maturing in January 2013, the Finance Ministry said. The yield is likely to be at least 4.8 percent, according to predictions from analysts at PKO Bank Polski SA, ING Bank Slaski SA, Societe Generale SA, Bank Handlowy SA, a unit of Citigroup Inc., and Pekao SA. That compares with 4.595 percent at the previous sale of two-year notes on Oct. 6 and would be the highest since May 5, when the yield was 4.802 percent.

The government abandoned initial plans to offer five-year bonds in today’s auction as yields surged to the highest level since February. It earlier postponed a sale of yen-denominated debt set for this year because of the “volatile debt market.” The zloty tumbled to the lowest level in more than four months this week as an 85 billion-euro ($111 billion) rescue package for Ireland failed to halt a decline in Portuguese, Spanish and Hungarian bonds.

“The situation in Europe is casting a pall over the entire market although the shorter end has suffered the least,” said Miroslaw Budzicki, a Warsaw-based analyst at PKO. “It’s no wonder that the ministry decided against the five-year debt because this bond may not have found the buyers in this environment.”


PKO predicts an average yield between 4.82 percent and 4.83 percent, while ING Bank Slaski sees it in a 4.80 percent to 4.83 percent range. Societe Generale projects it will reach 4.81 percent and Bank Handlowy expects a yield of about 4.80 percent. Bank Pekao forecasts a 4.85 percent yield. All of the banks surveyed are among 12 primary dealers at the Finance Ministry’s debt auctions.

The yield on the country’s five-year bonds rose 33 basis points to 5.54 percent in November, or triple the 11 basis-point increase for two-year debt to 4.89 percent, according to data compiled by Bloomberg.

International investors have raised their holdings of shorter-dated debt in November and “slightly reduced” their positions in longer maturities, Piotr Marczak, the head of the Finance Ministry’s public debt department, wrote in a e-mailed response to questions from Bloomberg News on Nov. 29. He cited “reduced expectations” for rate increases as a reason for a shift in investors’ preference.


“Given recent global sentiment and the approaching of the year-end, we expect demand from international investors to be modest” at the auction, Esther Law, senior emerging-market strategist at Societe Generale in London, wrote in a note to clients today.

International investors didn’t augment their holdings of Polish domestic bonds in October for the first time since March, according to Marczak. They bought a total of 44.9 billion zloty of bonds in the first 10 months of the year.

The central bank left the main interest rate at a record low for a 17th month at the meeting on Nov. 23. The likelihood of a change faded as core inflation, which excludes food and fuel prices, remained at a 34-month low and council member Andrzej Bratkowski said before the meeting it was “too late” for a preemptive move. He voted for a 50 basis-point increase at the meeting in August.


Adam Glapinski, another central banker who previously supported a rate rise, was quoted by PAP newswire on Nov. 26 as saying that a strong zloty “acts stronger and faster” in fighting inflation than interest-rate changes. Three-month forward-rate agreements, contracts used by investors to bet on changes in interest rates, dropped to 4.19 percent today from as high as 4.32 percent on Nov. 12. The contracts are trading 31 basis points above the three-month Warsaw Interbank Offered Rate of 3.88 percent.

Poland’s annual inflation rate probably held steady at a nine-month high of 2.8 percent in November, the Finance Ministry said in an e-mailed estimate today. The country’s manufacturing industry grew for a fourth month in November as new orders grew the fastest since May 2004, HSBC Holdings Plc said today. A report yesterday showed the economy expanded at an annual rate of 4.2 percent in the third quarter, the fastest pace in two years.

“People are searching for a safe haven and find it in the two-year segment especially after interest rate expectations have shifted to next year,” said Arkadiusz Urbanski, an analyst at Bank Pekao SA.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at

To contact the editor responsible for this story: Gavin Serkin at

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