Polish Bond Yields Set for Record Low on Asia Inflows, Rate Bets

Polish two-year bond yields headed for a record low, helped by inflows from Asia and speculation the central bank will continue cutting interest rates to revive the slowing economy.

The yield fell two basis points, or 0.02 percentage point, to 3.10 percent at 12:22 p.m. in Warsaw, down from as much as 3.56 percent on March 5, according to generic prices compiled by Bloomberg. The zloty strengthened for the second day, gaining 0.2 percent to 4.1795 against the euro.

There are “very large inflows from Asian investors” to the Polish bond market after the Bank of Japan eased monetary policy yesterday, deputy Finance Minister Wojciech Kowalczyk was cited as saying by Reuters today. Pressure is piling on the central bank to resume rate reductions after Poland’s economy grew at the slowest pace in four years in the fourth quarter of 2012 and inflation was the slowest since 2006.

“The short-end of the curve prices in the continuation of the Monetary Policy Council’s loosening cycle,” Bank Pekao SA economists, led by Marcin Mrowiec in Warsaw, wrote in a note today.

Yields on the two-year notes dipped below a previous low of 3.11 percent from Dec. 21, data compiled by Bloomberg show.

Policy makers cut borrowing costs by a total 150 basis points since November to a record low of 3.25 percent and Governor Marek Belka said after last month’s reduction that the rate panel adopted a “wait-and-see” approach. All 27 economists surveyed by Bloomberg expect interest rates to stay unchanged next week.

Nine-months forward rate agreements, derivatives used to bet on interest rates, traded 45 basis points below the Warsaw Interbank Offered Rate, signaling bets for almost two more quarter-point rate reductions this year.

The BOJ announced plans to double its monthly bond purchases to about 7.5 trillion yen ($77.8 billion) as it seeks to achieve 2 percent annual inflation in 2 years, helping spark a global bond rally.

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