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Polish Bonds Drop 1st Day in 6 as Interest Rate Council Meets

April 9 (Bloomberg) -- Polish bonds retreated for the first time in six days, ending a rally that took yields to record lows, as the Monetary Policy Council gathered for a two-day meeting to decide on interest rates.

The yield on 10-year bonds rose eight basis points, or 0.08 percentage point, to 3.58 percent, after dropping 44 basis points in the last five days. The zloty depreciated less than 0.1 percent to 4.1242 against the euro at 4:25 p.m. in Warsaw, after strengthening 1.8 percent over the last three days.

“A delicate correction is not anything unusual” after the recent “quite large” move in yields, Michal Jochymek, senior central and eastern Europe fixed-income trader at BNP Paribas SA in Warsaw, said in an e-mailed response to questions today.

The central bank will keep the benchmark rate unchanged at a record low of 3.25 percent when it announces its decision tomorrow, according to all 35 economists surveyed by Bloomberg. Investors are speculating whether Governor Marek Belka will stick to his “wait-and-see” stance from March or acknowledge weaker economic developments in Poland as well as the euro region and the U.S. over the past month.

The spread between nine-month forward rate agreements, derivatives used to bet on interest rates, and the Warsaw Interbank Offered Rate narrowed to 48 basis points today from 53 basis points yesterday, signaling a decline in the odds for two quarter-percentage point rate reductions this year.

The Finance Ministry will offer from 3 billion zloty to 5 billion zloty in 10-year bonds and floating rate notes maturing in 2024 at an auction on April 11, the ministry said in a statement today. The government said last month it planned to offer from 2 billion to 5 billion zloty in bonds at the auction.

“This is not a big difference,” Jochymek said. “Everybody knows that with yields at current levels the ministry will want to sell as much as possible.”

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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