Pay to Own Emerging Market Bonds: Negative Yields Reach Poland

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Swiss investors paid to buy emerging-market bonds as Poland became the latest government to borrow at negative yields.

The European Union’s largest eastern nation almost tripled its offering to 580 million Swiss francs ($609 million) of three-year notes as investors accepted a yield of minus 0.21 percent, the Finance Ministry in Warsaw said Tuesday. Still, that’s 60 basis points less negative than equivalent Swiss government debt.

Poland’s sale shows how the group of governments and companies benefiting from near-zero central bank rates and stimulus policies is widening to lower rated investment-grade borrowers. While the billionaire hedge fund manager Alan Howard said it’s “crazy” to buy bonds with negative yields and Pacific Investment Management Co. warned of over-valuations in European debt markets, Finance Minister Mateusz Szczurek boasted that Poland had joined an “elite” group of “most-trusted” borrowers, in a statement Tuesday.

“This is a landmark deal from the perspective of the negative yield,” Richard Segal, the London-based head of emerging-market credit strategy at Jefferies International Ltd., said by e-mail on Tuesday.

Poland’s existing franc debt due May 2018 yielded minus 0.16 percent on Wednesday. The rate on the country’s euro-denominated notes due in January 2019 rose one basis point to 0.24 percent after reaching a record-low 0.23 percent on Tuesday. The yield on 10-year local-currency bonds increased to 2.59 percent today, the highest since mid-December.

Negative Yields

The sale comes after the yield on Czech two-year koruna notes has been below zero for the past two weeks and was at minus 0.008 percent on Tuesday.

Poland will use proceeds from the sale to buy back some of its 1.5 billion francs of notes coming due in May, Deputy Finance Minister Artur Radziwill said in an e-mailed statement on Monday. HSBC Holdings Plc and PKO Bank Polski SA managed the sale.

The offering in the Swiss currency was the largest since Poland sold a total of 825 million francs of fixed- and floating-rate notes in April 2012. The government paid 1.035 percent to raise 500 million francs in September 2014, the Finance Ministry said at the time.

In the three months since the Swiss National Bank scrapped the franc’s ceiling against the euro, it’s intervened in currency markets, cut interest rates and last week made more depositors subject to its negative rates.

Polish investors bought 47 percent of Tuesday’s issue, while 34 percent was allocated to buyers in Germany and 19 percent in Switzerland, according to distribution statistics from a person familiar with the deal, who didn’t want to be identified.

The notes are “attractive to Swiss locals or anyone who wants long-dated Swiss franc exposure,” Paul McNamara, a money manager who helps oversee $6.3 billion of debt at GAM UK Ltd., said by e-mail from London on Tuesday.

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