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Bond Yields Drop to 3-Week Low After Rate Cut, Zloty Strengthens

March 07, 2013

The yields on Polish government bonds slumped to a three-week low and the zloty recovered from the steepest decline in six weeks after the central bank unexpectedly cut interest rates to a record low yesterday.

The yield on Poland’s two-year bonds fell eight basis points, or 0.08 percentage point, to 3.39 percent at 11:47 a.m. in Warsaw today, the lowest level since Feb. 15. The yield tumbled nine basis points yesterday after the central bank cut rates by 50 basis points to 3.25 percent, exceeding market expectations of a quarter-point reduction.

“It often happens that when the central bank surprises the market, adjusting to new levels takes some time,” Marek Kaczor, head of fixed income and derivatives at Poland’s top lender PKO BP SA, said in an e-mailed response to questions.

The Finance Ministry will hold a switch auction today at which it will offer 10-year and 16-year bonds as well as floating rate notes due in January 2024 in return for debt maturing from April to October this year.

The zloty strengthened 0.1 percent to 4.1435 per euro, after a drop of 0.5 percent yesterday. Central bank Governor Marek Belka said the policy council switched to a “wait-and- see” approach after reducing borrowing costs.

“The council’s reluctance to ease is supportive for the zloty, but weak data ahead should still be a reminder that a single easing is possible, so the zloty should be range bound between 4.13-4.18,” Bank Zachodni WBK SA (BZW) economists, led by Maciej Reluga, wrote in a note today.

To contact the reporter on this story: Maciej Onoszko in Warsaw at

To contact the editor responsible for this story: Wojciech Moskwa at

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