Investors are heaving a sigh of relief after some deft footwork averted a political crisis in Poland.
President Andrzej Duda defused a highly-charged atmosphere by vetoing parts of a controversial government plan that would have threatened the judiciary's independence.
The proposal had triggered the longest run of street protests since the dying days of the country's communist regime, as well as threats of sanctions from the European Union.
The zloty, as well as the country's bond and stock market, all rallied on Monday's news. Short-term volatility aside, though, there's little sign investors are betting this will develop into a wider economic crisis.
Helped by an economy that grew 4 percent in the first quarter, the country's benchmark WIG20 index has advanced 20 percent this year. That's a bigger increase than either the Budapest Stock Exchange Index or the Czech Republic's PX index.
Yields on Poland's 10-year government bonds have fallen to 3.25 percent from close to 4 percent at the start of the year. That's still more than any country in the euro zone except Greece, but now the political heat has been reduced, yields should continue on their downward trajectory. A 275 basis point pickup relative to Germany should be a major attraction for investors -- as long as currency risk versus the euro is minimal.
There, the zloty has held in a pretty consistent range against the euro and should strengthen back after its recent weakness.
The risk is Duda's veto turns out to be just one battle in a drawn-out political fight. However phlegmatic they may be today, foreign investors can't say they haven't been given a warning.
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