Polish Bonds Pare Worst Drop in Emerging Markets on Brexit Shift

  • Bonds advance most in emerging markets after Brazil and Turkey
  • Investors shrug off dismissal of Finance Ministry’s debt head

Polish bonds rose to a one-month high as indications that U.K. citizens were favoring a vote to remain in the European Union rekindled appetite for the bloc’s biggest beneficiary.

The yield on Poland’s 10-year zloty government bonds fell 11 basis points to 3.04 percent, extending a rally from Friday which brought the rate down by 13 basis points from a one-year high. The premium investors demand to hold the notes over similar-maturity German bunds also fell for the second day. The zloty rose 0.4 percent to 4.3930 per euro at 3:21 p.m. in Warsaw, the strongest in a week.

Poland is tracking shifts in pre-Brexit polling because a U.K. vote to leave on June 23 would curb the subsidies Warsaw receives from the EU’s common budget, as well as erect barriers to $18 billion per year in bilateral trade. The bonds of the EU’s biggest post-communist economy have been the worst performers among local-currency emerging-market debt in the past six months as new government policies including a bank tax and higher social spending prompts investors to rethink the nation’s haven status.

Local Risks

“We expect a large decline in the spread over bunds after the referendum, but only a slight rise in the prices of bonds themselves because of local risks and prospects of an increase of interest rates in the U.S.,” economists at ING Bank Slaski SA in Warsaw led by Rafal Benecki, who expect the British to vote to remain in the bloc, wrote in a note.

The chances of a ‘Leave’ vote have faded since the murder of pro-European lawmaker Jo Cox last week. A poll taken since the killing and published over the weekend showed 45 percent of voters backed the ‘Remain’ camp, while 42 percent were in favor of a so-called Brexit -- a turnaround from early last week when a slew of surveys put the latter group ahead.

Bonds rallied even as the Finance Ministry dismissed Piotr Marczak, its veteran head of public debt, who’s been in charge of the department since 2005. Marczak will be replaced by his deputy Robert Zima, who has worked at the ministry for 12 years, during which he has also been involved in debt management.

The ministry declined to comment on the reasons for the dismissal. It follows a series of changes of top officials in Polish institutions and state-controlled companies after the Law & Justice party took over power in a general election in October.

“It’s good that they’ve maintained continuity and picked Marczak’s replacement from employees at the department,” Krzysztof Kalicki, the chief executive officer at Deutsche Bank Polska SA who served as deputy finance minister when Marczak joined the public debt department in the early 90s, said by phone.

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