Brexit Turns Positive for Most Vulnerable Country’s Funding Plan

Updated on
  • Poland plans to sell up to 15 billion zloty of bonds in July
  • Ministry looking to soon tap positive sentiment, says PKO

Britain’s vote to leave the European Union has unexpectedly created favorable fundraising conditions for the country most vulnerable to Brexit.

QuickTake Poland’s Populist Turn

While the referendum result on June 24 prompted Poland to cancel a debt auction for the first time in a year as bond yields soared, the nation’s borrowing costs have since fallen to the lowest levels in more than a month. The Finance Ministry said today it was looking to sell as much as 25 billion zloty ($6.3 billion) of bonds in the third quarter, with the majority coming from offerings next month.

“The ministry is seeking to soon make use of the positive sentiment on the debt market,” said Miroslaw Budzicki, a bond strategist at Poland’s largest lender, PKO Bank Polski SA. “That may be manageable especially as investors will get significant funds from the redemption of existing bonds.”

Prospects for more stimulus and delays in Federal Reserve tightening have fueled demand for higher-yielding assets, making Poland’s biggest debt-sale target in six years easier to achieve. Investors have been cautious toward Poland on concern over disruptions in EU aid to the bloc’s biggest recipient of subsidies and government policies in Warsaw that have encroached on the independence of key institutions.

Poland plans to sell as much as 15 billion zloty of bonds at two auctions in July toward a third-quarter target of up to 25 billion zloty, according to the Finance Ministry. While that’s down from 28.7 billion zloty of notes sold in the second quarter, it compares with 19.7 billion zloty sold in the same period last year.

Bonds gained for a fourth day, sending the yield on 10-year notes down two basis points to a six-week low of 2.91 percent at 5:45 p.m. in Warsaw. While the rally has helped narrow the premium over similar-maturity German bunds to 306 basis points, the spread remains above the one-year average of 252 basis points, according to data compiled by Bloomberg.

Bonds have climbed along with other emerging-market assets as traders push back bet for U.S. rate increases, signaling costs are unlikely to rise before 2018. The European Central Bank has the tools to respond to the fallout from Britain’s referendum, Vice President Vitor Constancio said on Wednesday. South Korea announced a fiscal stimulus package and Bank of Japan chief Haruhiko Kuroda said more funds can be injected into the market should they be needed.

Poland has covered over 70 percent of this year’s 182.7 billion-zloty borrowing requirement, Deputy Finance Minister Piotr Nowak said today. With a cash cushion of about 56 billion zloty in local and foreign currencies at the end of June, the government “has the comfort to observe markets calmly” and adjust the bond supply to market conditions, he said.