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Polish Yields Drop as PMI at 3 1/2-Year Low Fuels Rate Cut Bets

Poland’s bond yields fell to a record on speculation today’s interest-rate cut by the European Central Bank and local manufacturing plunging to a 3 1/2-year low will put pressure on the nation’s policy makers to further cut rates.

Yields on the government’s 10-year bonds dropped 11 basis points, or 0.11 percentage point, to 3.15 percent at 4:37 p.m. in Warsaw, after slumping 68 basis points in April, the most since November 2008. The zloty gained 0.6 percent, the most in four weeks, to 4.1390 against the euro.

The ECB cuts its main refinancing rate by 25 basis points to a record 0.5 percent. Poland’s central bank kept its rates unchanged at 3.25 percent, also a record low, in April after reducing them by 150 basis points between November and March. The policy makers will announce the rates decision on May 8.

“The cut by the ECB may be viewed by rate council members as a signal that exterior conditions have weakened more than thought,” Pawel Radwanski, a fixed-income analyst at Raiffeisen Bank Polska, said by phone.

Poland’s manufacturing PMI slumped to 46.9 in April, the lowest level since July 2009 and below the 47.8 median-estimate of 21 economists in a Bloomberg survey. The data “will keep up pressure for further interest rate cuts,” Agata Urbanska, an economist at HSBC Holdings Plc, said in the PMI report.

The Polish central bank will cut rates by 25 basis points in May, JPMorgan Chase & Co. and Capital Economics said in separate research notes today.

Nine-month forward rate agreements, derivatives used to bet on interest rate changes, traded 65 basis points below the Warsaw Interbank Offered Rate, signaling scope exists for almost three quarter-point rate reductions over the next nine months.

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