Allianz Cool on Polish Bonds as Bigger Gains Seen Abroad

Polish government bonds are looking too expensive versus peers for Allianz Global Investors.

The money management unit of Allianz SE, Europe’s biggest insurer, owns fewer zloty and foreign-currency bonds than indicated by benchmarks because “rates and spreads are very low” compared with other emerging markets, said Shahzad Hasan, who helps manage $1.7 billion in developing-nation fixed-income assets. The company is buying debt of smaller countries such as Croatia, Serbia, Bulgaria, Kenya and Morocco, he said.

“We are underweight Poland,” Hasan said by e-mail from London yesterday. “Poland is one of the highest-rated credits in emerging markets, with strong domestic policies. This means the country does not provide the highest rates or spreads.”

The premium investors demand to hold Poland’s euro-denominated bond due June 2018 over similar German notes rose one basis point from yesterday’s six-month low of 49 basis points, compared with 280 for Croatia, as the economy strengthens amid record-low central bank interest rates. The yield on Poland’s 10-year zloty bonds declined five basis points to a 14-month low of 3.18 percent at 4:30 p.m. in Warsaw. Equivalent Hungarian securities yielded 4.40 percent.

Shorter Maturities

Hasan says he prefers the “short end” of the zloty yield curve, which he expects to steepen. The spread between yields on two- and 10-year securities narrowed to 78 basis points, the smallest gap since May 2013.

Polish debt may benefit from investors fleeing Russia amid concern the U.S. and the European Union may impose additional sanctions over the Ukraine crisis, according to ING Groep NV’s Warsaw-based economists Rafal Benecki and Grzegorz Ogonek.

“Poland plays the role of a safe haven for bond investors,” they wrote in a report on July 24. Investor demand for the country’s most recent bond auction on July 23 drew 20 billion zloty ($6.5 billion), the most in 15 months.

The yield on Poland’s two-year zloty government notes was little changed at all-time low 2.39 percent. The zloty weakened 0.1 percent to 4.1505 per euro.

Poland’s economy expanded 3.4 percent in the first quarter from the same period of 2013, the fastest pace in two years. Growth will stabilize at 3.6 percent this year and next, while inflation will accelerate to near the central bank’s 2.5 percent target in 2016, according to bank projections published this month. The central bank has kept its benchmark rate at 2.5 percent since July last year.

With inflation at 0.3 percent in the 12 months to June, the central bank has scope to lower interest rates, Hasan said.

“As a base case, however, I still think the policy rate remains on hold as the central bank takes a cautious approach to monetary policy,” he said.

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