Bloomberg News

Zloty Bonds Rally as Fitch Revises Poland’s Outlook to Positive

February 21, 2013

Polish bond yields fell to a two- week low and the zloty erased losses as Fitch Ratings changed its outlook on Poland’s A- credit rating to positive, citing a lower budget deficit and stabilized public debt.

The yield on the government’s benchmark 10-year zloty bond fell six basis points, or 0.06 percentage point, to 3.99 percent at 5:31 p.m. in Warsaw, according to data compiled by Bloomberg. The yield hit a record low of 3.71 percent on Dec. 21, the data show.

The revision from a stable outlook reflects a narrowing of the country’s budget deficit to an estimated 3.4 percent of economic output last year and a stabilization of public debt at around 54.5 percent of gross domestic product, Fitch said in a statement. The ratings company said pension changes will “improve medium-term sustainability of public finances” and Poland’s long-term growth potential could increase if the government helped improve the business environment.

“This is definitely good news for local bonds and also the zloty,” Esther Law, a senior emerging-market strategist in London at Societe Generale SA, wrote in a note today. “This outlook should also offer reassurance for Polish government debt holders, who are worried about positioning becoming heavier these days.”

The zloty traded less than 0.1 percent stronger at 4.1593 against the euro. The yield on Poland’s euro-denominated notes due in 2024 fell six basis points to 3.11 percent.

Foreign Inflows

Foreign investors have bought record amounts of Polish bonds in the last three years after the country’s economy became the only one in the European Union to avoid recession since the global debt crisis in 2008. That helped cut borrowing costs to the lowest since the fall of communism in 1989.

Fitch has kept Poland’s rating at A-, the fourth-highest investment grade, since 2007, according to data compiled by Bloomberg. An upgrade could result from continued progress with fiscal consolidation that puts the public debt ratio on a “clear downward path,” along with a “material reduction” in external debt ratios, according to the statement.

“Public debt ratio will be slow to improve as we need a rebound in growth, which is not happening this year for sure,” Viktor Szabo, who helps manage $11 billion in emerging-market debt at Aberdeen Asset Management, said in e-mailed response to questions today. “I don’t think that will have have a material impact on bonds. Europe is still holding Polish ratings back.”

The European Union’s largest eastern economy expanded at its slowest pace since 2009 last year as the euro area, its biggest trading partner, slipped into recession and consumers curbed their spending in the face of rising unemployment.

Moody’s Investors Service is “continuing to maintain a stable outlook on the sovereign’s A2 rating,” Jaime Reusche, a New York-based analyst at the company, said in an e-mail today responding to questions from Bloomberg News. The company rates Poland one step above Fitch.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net


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