Goldman to BNP Still Keen About Bonds Amid Streak: Poland Credit

Even after the longest run of gains in 16 months for Poland’s zloty bonds, BNP Paribas SA and Goldman Sachs Group Inc. say there’s still reason to be bullish.

Government debt returned 1 percent in April and 3.6 percent during the past three months, the longest stretch since December 2012, the Bloomberg Poland Local Sovereign Index shows. Yields on five-year notes reached 3.53 percent, 58 basis points less than this year’s high and 302 basis points over similar German securities, compared with 272 on Dec. 31.

Policy maker Adam Glapinski told PAP newswire April 28 that the National Bank of Poland may be free to keep its benchmark rate at a record-low 2.50 percent until the middle of 2015 amid consumer-price growth 2.1 percentage points below its five-year average. BNP Paribas advises buying five-year zloty notes given “persistently low inflation” and prospects of quantitative easing by the European Central Bank, emerging-market strategists Piotr Chwiejczak and Dina Ahmad wrote in an April 29 report.

“Poland is one foot in the euro area and will offer a positive real interest rate of about 2 percent in the next two years, while Europe will show negative real rates,” Chwiejczak said by phone from London on May 2.

The central bank pledged in March to keep rates on hold at least until the end of the third quarter as growth in the European Union’s largest eastern economy accelerates without stoking price growth. Inflation stayed unchanged at 0.7 percent in March, leaving the real interest rate at 1.8 percent.

ECB Outlook

The ECB will probably keep its benchmark rate at an all-time low of 0.25 percent at the next meeting on May 8, according to the median estimate of economists in a Bloomberg survey. Policy makers will take some sort of action within two months against the threat of low prices, which rose a less-than-forecast 0.7 percent in April, another survey showed last month.

Given the outlook for price growth across Europe, analysts will probably push back forecasts for Polish rate increases, creating scope for further bond gains, Andrew Matheny, an analyst at Goldman Sachs, wrote in a note on April 22.

Poland is seen raising rates by 50 basis points to 3 percent in the first three months of next year and to 3.25 percent by the end of the first half, according to the median estimate of economists surveyed by Bloomberg.

‘More Dovish’

“Our views are significantly more dovish than market pricing in Poland on a 12-18 month horizon,” which translates into a “constructive outlook” on Polish bonds, Matheny wrote in the report. He predicted a 25 basis-point increase by the end of June 2015. The view was still valid on May 2, the bank’s Frankfurt-based spokeswoman Katharina Jung said by e-mail.

Traders have scaled back bets for higher rates in Poland, now predicting less than a quarter-point increase over the next year, according to forward-rate agreements on May 2. That compares with expectations for a full 25 basis-point jump in the 12 months from April 23 and more than a half-point increase in the year from Jan. 31, the data show.

The zloty slipped less than 0.1 percent to 4.2077 against the euro at 12:49 p.m. in Warsaw, taking its 2014 drop to 1.3 percent. The additional yield on Poland’s dollar bonds over Treasuries was unchanged at 119 basis points, JPMorgan Chase & Co. indexes show. That compares with this year’s low of 103 basis points on April 17.

Poland may decide to start raising rates in the fourth quarter as the economy accelerates, Andrzej Rzonca, a member of the central bank’s Monetary Policy Council, said in an interview for newspaper Parkiet on May 2.

“The sooner we raise rates, the more gradual the increases will be and their total scale will be more limited,” he said.

Zloty Weakens

Inflation will probably accelerate to 1.3 percent this year from 0.9 percent in 2013, as the economy expands 3.2 percent, double last year’s pace, according Bloomberg surveys of economists. The central bank is targeting price growth of 2.5 percent.

An escalating crisis may damp economic expansion, shaving off about 0.6 percentage point from growth in the worst-case scenario, according to BNP’s Chwiejczak.

Violence increased in Ukraine’s easternmost regions as the government pursued its offensive to dislodge rebels and the conflict spread to the south. The easternmost area is “essentially at war,” the head of the country’s anti-terrorist agency said May 3.

“The geopolitical situation works toward lower inflation in Poland,” further supporting zloty bonds, Chwiejczak said.

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