Polish Yields Hover Near Record Lows as Employment Declines

Polish 2-year bond yields held near record lows as a report showed the employment rate fell in November, boosting the case for more interest-rate cuts.

The yield on notes maturing in July 2014 was unchanged at 3.30 percent as of 6:06 p.m. in Warsaw after falling to as low as 3.20 percent last week. The zloty gained less than 0.1 percent to 4.0879 against the euro.

The country’s employment rate fell 0.3 percent from a year earlier last month, the first decline since March 2010, the statistics office said today. The report may be followed by industrial production and core inflation data this week that may point to a deepening economic slowdown, according to Citigroup Inc. The central bank cut interest rates for a second month in December and Governor Marek Belka said policy makers “can’t afford” a pause in monetary easing.

“The labor market data is a negative surprise,” Piotr Kalisz, chief economist at Citigroup’s unit in Warsaw, wrote in an e-mailed note to clients. “This practically means that the central bank may continue to ease the monetary policy.”

Investors in interest rate derivatives predict the central bank will reduce the main rate by another 1.13 percentage point in the next 12 months, according to a gap between Warsaw Interbank Offered Rate and forward rate agreements.

Returns on Polish domestic bonds this year was 24 percent in euro terms, the fifth-biggest gain among 26 countries tracked by Bloomberg and European Federation of Financial Analysts Societies.

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