Volatility Plunge Has Polish Money Manager Seeking Bigger Waves

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A drop in volatility is driving some investors out of Poland’s bond market.

Thirty-day swings on Poland’s 10-year zloty bond yields dipped to a nine-month low on Tuesday. The rate, which dropped below 2 percent for the first time in January, has stayed within six basis points of this year’s average of 2.27 percent for the past month, data compiled by Bloomberg show.

“There’s no point in paddling your board when there are no waves around,” Krzysztof Madej, 38, a keen surfer who heads the debt department at the Warsaw-based mutual fund Altus TFI SA, with 5.1 billion zloty ($1.4 billion) of assets, said in an interview on Monday. “The market has clearly calmed.”

Volatility in central and eastern Europe’s biggest government debt market has fallen amid pledges from the Polish central bank to avoid further interest-rate cuts despite the longest stretch of deflation in at least three decades. The European Central Bank’s 1.1 trillion euro ($1.2 billion) bond-purchase program is being countered by bets on rate increases in the U.S., according to Madej. While yields will rise with inflation, the process will be gradual, he said.

The National Bank of Poland called an end to its easing cycle in March when deflation prompted policy makers to cut borrowing costs by 50 basis points. That pledge “remains in force,” Governor Marek Belka told reporters last week after policy makers left their benchmark rate at a record-low 1.5 percent.

Accelerating Growth

Reports on Monday showed bigger-than-estimated gains in industrial output and retail sales, signaling economic growth was gathering steam. While consumer prices have fallen since July, analysts predict prices will rebound in the fourth quarter as the economy improves, according to Bloomberg surveys.

ECB President Mario Draghi said on Monday the “extraordinary” range of his bank’s policy actions will facilitate a pickup in euro-area economy and inflation. The latest Bloomberg survey shows 71 percent of participating economists expect the Federal Reserve to raise rates from near zero in September after a slowing of U.S. activity diluted speculation it would act as soon as June.

A gauge of 30-day volatility on Polish bond yields due July 2025 fell to 24.2, the least since July 30, data compiled by Bloomberg show.

The yield on the security rose one basis point to 2.32 percent at 10:10 a.m. in Warsaw, 34 basis points above a record-low reached on Jan. 30. The rate compares with 5.80 percent on similar Mexican bonds and a 12.6 percent for Brazilian debt.

“The market isn’t as juicy as yield curves in say Latin America, which offer more attractive risk and term premia,” Altus TFI’s Madej said. In Poland, “we’re at a point at which it’s very hard for the market to move either way,” he said.

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