- Goes overweight from market-weight, favoring 2023, 2025 notes
- Selloff has pushed yields to highest versus Germany since 2014
Morgan Stanley says it’s time to start buying Polish government debt again.
The bank turned overweight from market-weight in zloty bonds on Tuesday, arguing investor concerns over government policies pushed valuations of the country’s bonds to attractive levels. Polish bonds maturing in 10 years and longer fell for the past three months, pushing the premium investors demand to hold the bonds over similar German debt to a two-year high last week.
The country’s debt sold off amid worries over government finances as the Law & Justice party embarked on a program to increase social spending, delivering on campaign pledges that gave it a landslide victory in October’s general election. Investors have become more wary last month after Standard & Poor’s unexpectedly downgraded the sovereign, citing concern over the independence of key institutions.
“Concern about the rating downgrade and fiscal slippage seems valid but an increasing risk premium in the long end could compensate for such risk,” Min Dai, an emerging-market fixed-income strategist at Morgan Stanley in London said in a note. The bank said it favors zloty bonds maturing in 2023 and 2025.
Tax revenue showed “a positive trend” in January, with payments from VAT increasing 16 percent from last year, Deputy Finance Minister Konrad Raczkowski said on Monday. The comments are “encouraging” and may help reduce the yields on Polish bonds, MBank SA economists, which hold a “constructive” stance on 10-year zloty notes, said in an e-mailed note on Tuesday. The ministry will present detailed data on last month’s budget performance at 3 p.m. in Warsaw today.
The yield on Poland’s 10-year bond rose one basis point to 3.04 percent today, leaving the premium over similar German bonds at a three-week low 278 basis points. The zloty fell 0.3 percent to 4.4086 per euro, curbing its month-to-date advance at 0.3 percent, the second-best performance among 24 emerging-market peers tracked by Bloomberg behind the Romanian leu.