Polish Yields Advance on Bets Fed to Start Tapering in December

Poland’s bond yields rose to their highest level in a month on speculation the U.S. Federal Reserve may start tapering its monetary stimulus by as early as December, cutting the appetite for riskier assets.

The yield on 10-year Polish government debt climbed 13 basis points, or 0.13 percentage point, to 4.43 percent at 4:51 p.m. in Warsaw, the strongest level since Oct. 11. The spread over similar-maturity German bonds added 10 basis points to 265, the highest since September. U.S. payrolls data on Nov. 8 showed companies added almost twice as many workers as projected in October, damping demand for fixed-income assets.

“The macroeconomic environment supports the reduction of positions on emerging markets,” Jakub Taborowicz, who helps manage the equivalent of $7.1 billion at Poland’s largest mutual fund PZU TFI SA, said by e-mail. The payrolls were “a trigger” that accelerated the process.

U.S. policy makers will reduce the pace of their monthly asset purchases to $70 billion at their March 18-19 meeting, from the current $85 billion, according to the median estimate of 32 economists in a Bloomberg News survey on Nov. 8. A similar forecast in an Oct. 17-18 survey of 40 economists also called for a cut to $70 billion in March.

Longer term Polish debt “will be the worst performing” by year-end, Miroslaw Budzicki, a Warsaw-based strategist at the nation’s largest lender PKO Bank Polski SA, wrote in a monthly note today. He recommended selling 10-year bonds at 4.35 percent, with a target of 4.8 percent.

Poland’s central bank pledged to keep interest rates at a record low of 2.5 percent through at least mid-2014, Governor Marek Belka said Nov. 6. The European Central Bank unexpectedly trimmed its main rate to 0.25 percent on Nov. 7 as the euro region faces the danger of a “prolonged” period of low inflation, ECB President Mario Draghi said on that day.

“Even though the ECB cut rates, you can see that everyone is most concerned about how soon and by how much the Fed will start to cut stimulus,” Krzysztof Bednarczyk, who helps oversee 1.4 billion zloty at Opera TFI, a Warsaw-based money manager, said by e-mail. Given that the Polish central bank “has no inclination to increase rates,” domestic bond yields are entering “really nice buying levels.”

The zloty advanced 0.1 percent to 4.2083 per euro, recovering from a 0.8 percent depreciation to a six-week low yesterday, when the local market was closed for a public holiday.

The currency pared earlier gains of as much as 0.3 percent after Poland’s current-account deficit widened more than expected. The gap rose to 1.02 billion euros from a revised 785 million euros in August, the central bank said today. The shortfall missed a median estimate of 823 million euros in a Bloomberg survey of 28 economists.

Before it's here, it's on the Bloomberg Terminal.