Poland Bonds Gain Sending Five-Year Yield to Record on Rate Bets

Polish bonds climbed, sending the five-year yield to a record low, as speculation grows the nation’s central bank will lower interest rates to bolster economic growth.

The yield on the five-year zloty-denominated securities fell five basis points to 2.53 percent, while the 10-year rate decreased four basis points to 3.05 percent. The zloty was little changed at 4.1833 per euro, staying 0.1 percent weaker this month, the fifth worst performance among 24 emerging-market currencies tracked by Bloomberg.

Forward-rate agreements, derivatives used to speculate on interest rates, show expectations for more than two quarter-point cuts over the next six months, the most in 15 months, according to data compiled by Bloomberg. Polish retail sales increased 2.1 percent year on year in July, on par with the median estimate of 25 economists surveyed by Bloomberg, data showed today.

“Today’s data are a good argument for the market to start pricing in another 25 basis points of cuts,” Rafal Benecki, the chief economist at ING Groep NV’s Warsaw-based unit, said in a research note.

Poland’s central bank next decides on interest rates on Sept. 3, the day before the European Central Bank holds its first meeting since ECB President Mario Draghi said last week that policy makers will use “all available instruments needed” to ensure price stability.

Draghi’s comments spurred bets the ECB will resort to quantitative easing, including purchases of asset-backed securities. Poland’s central bank may cut rates by 50 basis points to 100 basis points over a few months if data confirms growth prospects are “moderating,” rate-setter Andrzej Bratkowski told Reuters Aug. 21. Price growth turned negative in July for the first time since at least the 1980s.

“The stars seem to be aligned for much more benign trading dynamics in Polish fixed income,” Luis Costa, the head of foreign-exchange and local-markets strategy for central and eastern Europe, the Middle East and Africa at Citigroup Inc. in London, said by e-mail.

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