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Zloty Suffers Worst Week Since 2011 on QE Risk as Yields Surge

Poland’s currency weakened the most in almost two years this week and bond yields jumped the most since 2008 after the Federal Reserve said it may end its asset purchase program that underpinned emerging-market inflows.

The zloty depreciated 0.4 percent to 4.3582 against the euro at 5:48 p.m. in Warsaw, after a 1.8 percent slide yesterday and extending its weekly loss to 2.7 percent, the biggest since September 2011. The yield on five-year notes rose 16 basis points, or 0.16 percentage point, to 3.86 percent, extending this week’s 65 basis-point jump, the largest since October 2008, data compiled by Bloomberg show.

“The mood is so ugly that the sell-off in emerging markets will continue,” Lukasz Witkowski, who manages the equivalent of $1.2 billion in bonds at mutual fund PKO TFI SA in Warsaw, said by e-mail today. “If some soothing comments from policy makers appear over the weekend, we might see some relief” at the start of next week, he said.

The Fed may taper its monthly purchases of $85 billion in assets later this year and halt the quantitative easing program around mid-2014 as long as the world’s largest economy performs in line with its projections, Fed Chairman Ben S. Bernanke said two days ago, sparking a global sell-off in assets. Poland has one of the most-liquid markets among developing countries, making it an “easy point of exit” when sentiment sours, Phoenix Kalen, a London-based economist at Royal Bank of Scotland Group Plc, said by e-mail yesterday.

The zloty is at risk of a further sell-off as “the near-term outlook” for currencies in Europe, the Middle East and Africa “is far from rosy,” Christin Tuxen, a senior analyst at Danske Bank A/S in Copenhagen, wrote in a note today.

The cost to insure Polish debt against non-payment for five years using credit-default swaps rose 12 basis points to an eight-month high of 108, data compiled by Bloomberg show. That compares with 133 for Israel, 114 for Chile and 64 for the Czech Republic, the data show.

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