Poles Dismiss Election Fever in Bonds More Stable Than Bunds

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Andrzej Duda
Andrzej Duda, the conservative party PiS (Law and Justice) candidate for President in the upcoming election addresses a party convection in Warsaw on Feb. 7. Photographer: Wojtek Radwanski/AFP/Getty Images

Poland’s narrowing presidential race is evoking little more than a stifled yawn from bond investors.

With four days to go before voting, the incumbent, Bronislaw Komorowski, is sliding in opinion polls from an outright majority in March to levels that would prompt a second ballot. Far from shaking up financial markets, zloty bonds have become more stable than Treasuries, German bunds or Czech notes, with 15-day volatility slumping to a 10-month low.

While support for leading opposition candidate, Andrzej Duda, raises the prospect of policies including a reduced retirement age and taxes on supermarkets and banks after this year’s parliamentary elections, the market calm shows faith in the economy’s recovery and the central bank’s monetary policy.

“It’s possible that politics will be the source of increasing noise as parliamentary elections approach, and there will be a lot more noise if Duda takes the presidency or runs a close second,” Paul McNamara, who helps oversee $6.3 billion as a money manager at GAM UK Ltd. in London, said by e-mail on Tuesday. “But it’s just going to be noise. You’d need some pretty compelling reason to panic on politics.”

Support for Komorowski dropped seven percentage points to 39 percent in April 28-29 TNS Polska opinion poll compared with three weeks earlier. Duda gained one percentage point to 25 percent, it showed. Other polls, including a CBOS survey released on Wednesday, have shown the president will beat the challenger in case of a run-off on May 24, needed if nobody wins an outright majority in this weekend’s vote.

Opportunity Window

While Poland’s bonds have handed investors losses for three consecutive months ending April 30, the longest stretch since 2006, looming elections have not been an issue, according to Roxana Hulea, an emerging-market strategist at Societe Generale SA in London. The selloff has more to do with rising yields in the euro area as the currency region, which buys 54 percent of Polish exports, shows signs of recovery, she said.

“There could be a window of opportunity” for Polish yields to tighten relative to those in the euro area, she said by e-mail on Tuesday. “I would not be losing any sleep over the Polish political scene, at least for now.”

The premium investors demand to hold 10-year zloty bonds over similar bunds set an 11-month high of 238 basis points on April 28, up from a seven-year low of 162 basis points reached in January. The spread stood at 231 basis points at 11:53 a.m. in Warsaw.

Komorowski, Poland’s most trusted politician who is running for a second and final five-year term, has sought to capitalize on an increase in living standards as Poland became the European Union’s only economy to avoid a recession after 2008.

Growth Trigger

Gross domestic product will expand 3.9 percent this year, the fastest clip since 2011, according to Citigroup Inc, while Nordea Bank AB said in a research note on Tuesday that the country’s economy was “simply doing too well” to trigger major political changes.

The presidential election will be a “significant test” for whether the ruling party can hang on to power for a third term in a parliamentary ballot due around October, Magdalena Polan, an economist at Goldman Sachs Group Inc., said in May 1 report.

While the government narrowed the budget deficit to 3.2 percent of GDP last year from a peak of 7.8 percent in 2010, Duda and his party promise to cut taxes, reverse an increase in the retirement age and reject euro adoption.

“The presidential election will to a large extent set the stage for the general election,” Dariusz Filar, a member of Poland’s Monetary Policy Council in 2004-2010 and economic adviser to former Prime Minister Donald Tusk, said by phone on Tuesday. “A weak showing by Komorowski in the first round, or only a narrow victory in the runoff, could boost parties that are trying to entice voters with populist ideas.”

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