Deutsche Bank, Frankfurt
Tel: +49 69 9103 4468
Last week's data showing that food prices had risen by only 0.5% m/m continues to fuel expectations for lower inflation figures and therefore another rate cut this month. However, even that did little to change the underlying negative bias.
Polish government bonds remained nervous on supply concerns before the size for Wednesday's 20 year POLGB auction was announced. The amount of Z1bn was at the lower end of consensus, initiating anticipation of stronger demand in this auction from domestic insurers, in contrast to last week's poor two year auction.
But demand proved well below expectations at Z0.96bn. As a consequence the finance ministry decided to cancel the auction and cut this month's total issuance from the targeted Z6.2bn-Z7.5bn. This supported the market into Thursday's trading session, although international accounts remain cautious about extending duration on supply concerns ahead of the five year auction on February 19.
Latest NBP data shows that foreign holdings of Polish T-bonds over the past few months have fallen. Nevertheless, the short end of the curve is well supported, pricing in around 45bp in cuts over three months, similar to that priced in to the Euribor curve.
Currency risk continues to be the main factor deterring interest in zloty bonds and the otherwise compelling yield pick up.